A and B are partners in a firm sharing profits in the ratio 2:1. C is admitted into the firm with 1/4 share in profits. He will bring in ₹30,000 as capital and capitals of A and B are to be adjusted in the profit sharing ratio. The Balance Sheet of A and B as on March 31, 2017 (b

Question

A and B are partners in a firm sharing profits in the ratio 2:1. C is admitted into the firm with 1/4 share in profits. He will bring in ₹30,000 as capital and capitals of A and B are to be adjusted in the profit sharing ratio. The Balance Sheet of A and B as on March 31, 2017 (before C's admission) was as under:

**Balance Sheet of A and B as at March 31, 2017**

| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---:|---|---:|
| Creditors | 8,000 | Cash in hand | 2,000 |
| Bills Payable | 4,000 | Cash at bank | 10,000 |
| General Reserve | 6,000 | Sundry Debtors | 8,000 |
| Capitals: A 50,000; B 32,000 | 82,000 | Stock | 10,000 |
| | | Furniture | 5,000 |
| | | Machinery | 25,000 |
| | | Building | 40,000 |
| **Total** | **1,00,000** | **Total** | **1,00,000** |

Other terms of agreement are as under:
1. C will bring in ₹12,000 as his share of goodwill.
2. Building was valued at ₹45,000 and Machinery at ₹23,000.
3. A provision for bad debts is to be created @ 6% on debtors.
4. The capital accounts of A and B are to be adjusted by opening current accounts.

Record necessary journal entries, show necessary ledger accounts and prepare firm's Balance Sheet after C's admission.

Accepted Answer

> [!TLDR]
> New ratio 2:1:1. Revaluation profit ₹2,520 (2:1). Goodwill ₹12,000 credited to A and B in 2:1. General Reserve ₹6,000 shared 2:1. Capitals fixed at A ₹60,000, B ₹30,000, C ₹30,000; the excess capital of A (₹3,680) and B (₹8,840) goes to their current accounts. Balance Sheet totals ₹1,44,520.

### Concept
This NCERT Class 12 Accountancy problem combines every admission adjustment — goodwill, revaluation, reserves and adjustment of capitals — in one question. The order matters: revaluation, reserves and goodwill are recorded first so that each old partner's capital is fully adjusted, and only then is capital compared with the required proportionate figure. Because the partners choose to open current accounts, the capital accounts are left exactly at the required level and the surplus sits as a credit balance in each partner's current account.

### Working Notes
**1. New profit-sharing ratio** — C takes 1/4 from A and B in old ratio 2:1; remaining 3/4 shared 2:1.
A = 2/3 × 3/4 = 1/2; B = 1/3 × 3/4 = 1/4; C = 1/4 → ratio 2:1:1.

**2. Revaluation** — Building up ₹5,000; Machinery down ₹2,000; Provision for bad debts = 6% of ₹8,000 = ₹480. Net profit = 5,000 − 2,000 − 480 = ₹2,520, shared 2:1 → A ₹1,680, B ₹840.

**3. Goodwill** — ₹12,000 credited to the sacrificing partners A and B in 2:1 → A ₹8,000, B ₹4,000.

**4. General Reserve** — ₹6,000 shared in old ratio 2:1 → A ₹4,000, B ₹2,000.

**5. Required capitals** — C's ₹30,000 for 1/4 share → total ₹1,20,000. A = ₹60,000, B = ₹30,000.
A's adjusted capital ₹63,680 → excess ₹3,680 to Current A/c; B's adjusted capital ₹38,840 → excess ₹8,840 to Current A/c.

### Solution

**Journal**

| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---:|---:|
| 2017 Mar 1 | Cash A/c Dr. | | 42,000 | |
| |   To C's Capital A/c | | | 30,000 |
| |   To Goodwill A/c | | | 12,000 |
| | (Amounts of capital and goodwill brought in by C) | | | |
| | Goodwill A/c Dr. | | 12,000 | |
| |   To A's Capital A/c | | | 8,000

Particulars	₹	Particulars	₹
To Building (decrease)	10,000	By Land (increase)	20,000
To Provision for Doubtful Debts (increase)	5,000	By Creditors (decrease)	8,000
To Profit transferred to:
A’s Capital A/c (3/5)	7,800
B’s Capital A/c (2/5)	5,200
Total	28,000	Total	28,000

Concept understanding — Admission Partner Adjustments

What does “Admission Partner Adjustments” mean?

1. Revaluation of Assets and Liabilities

2. Treatment of Goodwill

3. Adjustment of Reserves and Accumulated Profits/Losses

4. Adjustment of Capital Accounts

Concept

Working Notes

Solution

Liabilities	Amount (₹)	Assets	Amount (₹)
Creditors	8,000	Cash in hand	2,000
Bills Payable	4,000	Cash at bank	10,000
General Reserve	6,000	Sundry Debtors	8,000
Capitals: A 50,000; B 32,000	82,000	Stock	10,000
		Furniture	5,000
		Machinery	25,000
		Building	40,000
Total	1,00,000	Total	1,00,000

Date	Particulars	Debit (₹)	Credit (₹)
2017 Mar 1	Cash A/c Dr.	42,000
	To C's Capital A/c		30,000
	To Goodwill A/c		12,000
	(Amounts of capital and goodwill brought in by C)
	Goodwill A/c Dr.	12,000
	To A's Capital A/c		8,000
	To B's Capital A/c		4,000
	(Goodwill credited to A and B in their sacrificing ratio 2:1)
	Revaluation A/c Dr.	2,480
	To Machinery A/c		2,000
	To Provision for Bad Debts A/c		480
	(Decrease in machinery and creation of provision for bad debts)
	Building A/c Dr.	5,000
	To Revaluation A/c		5,000
	(Increase in the value of building)
	Revaluation A/c Dr.	2,520
	To A's Capital A/c		1,680
	To B's Capital A/c		840
	(Profit on revaluation distributed between A and B in 2:1)
	General Reserve A/c Dr.	6,000
	To A's Capital A/c		4,000
	To B's Capital A/c		2,000
	(Undistributed profit transferred to A and B in old ratio)
	A's Capital A/c Dr.	3,680
	To A's Current A/c		3,680
	(Excess of A's capital transferred to current account)
	B's Capital A/c Dr.	8,840
	To B's Current A/c		8,840
	(Excess of B's capital transferred to current account)

Particulars	Amount (₹)	Particulars	Amount (₹)
To Machinery	2,000	By Building	5,000
To Provision for Bad Debts	480
To Profit transferred to A's Capital (1,680) and B's Capital (840)	2,520
Total	5,000	Total	5,000

Concept

Working Notes

Solution

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