P and Q are partners sharing profits in the ratio of 3:2, with capitals of ₹1,20,000 and ₹80,000 respectively (after all other adjustments). They admit R for a 1/5th share; R brings in ₹60,000 as his capital. It is agreed that the capitals of all partners shall be adjusted in the

Question

P and Q are partners sharing profits in the ratio of 3:2, with capitals of ₹1,20,000 and ₹80,000 respectively (after all other adjustments). They admit R for a 1/5th share; R brings in ₹60,000 as his capital. It is agreed that the capitals of all partners shall be adjusted in their new profit-sharing ratio, on the basis of R's capital, with any deficiency to be brought in by the old partners in cash. Calculate the new capitals of P and Q and the amount each must bring in.

Accepted Answer

**Step 1 — Determine the New Profit-Sharing Ratio**

R is admitted for 1/5th share; remaining 4/5th is shared by P and Q in their old ratio of 3:2.

P's new share = 3/5 × 4/5 = 12/25; Q's new share = 2/5 × 4/5 = 8/25; R's share = 1/5 = 5/25

New Ratio P : Q : R = 12 : 8 : 5

**Step 2 — Compute the total capital of the reconstituted firm**

R's capital of ₹60,000 represents R's share of 5/25 (i.e., 1/5) of the total capital of the firm. So:

Total Capital of the New Firm = R's Capital ÷ R's Share = ₹60,000 ÷ (1/5) = ₹60,000 × 5 = **₹3,00,000**

**Step 3 — Compute each old partner's required capital**

P's required capital = 12/25 × ₹3,00,000 = **₹1,44,000**
Q's required capital = 8/25 × ₹3,00,000 = **₹96,000**
R's required capital = 5/25 × ₹3,00,000 = ₹60,000 (matches what R actually brought in, confirming the calculation)

Check: ₹1,44,000 + ₹96,000 + ₹60,000 = ₹3,00,000 ✓

**Step 4 — Compare with existing capitals to find the deficiency or surplus**

| Partner | Existing Capital (₹) | Required Capital (₹) | Deficiency (to bring in) |
|---|---|---|---|
| P | 1,20,000 | 1,44,000 | 24,000 |
| Q | 80,000 | 96,000 | 16,000 |

Both P and Q have a deficiency, so both must bring in additional cash to raise their capitals to the required level. R's capital already matches the required figure exactly, so R brings in nothing further.

**Step 5 — Journal Entries** …

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