The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of 6/14 : 5/14 : 3/14 respectively. Balance Sheet: | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Capital Accounts: | | Land and Buildings | 24,000 | | Arun | 19,000 | Furniture | 3,500 | | Bablu | 16,000 | Stock | 14,000 | | Chetan | 8,000 | Debtors | 12,600 | | Creditors | 9,000 | Cash | 900 | | Bills Payable | 3,000 | | | | **Total** | **55,000** | **Total** | **55,000** | They agreed to take Deepak into partnership and give him a share of 1/8 on the following terms: (a) that Deepak should bring in ₹4,200 as goodwill and ₹7,000 as his Capital; (b) that furniture be depreciated by 12%; (c) that stock be depreciated by 10%; (d) that a Reserve of 5% be created for doubtful debts; (e) that the value of land and buildings having appreciated be brought up to ₹31,000; (f) that after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of Deepak's Capital to his share in the business, i.e., actual cash to be paid off to, or brought in by the old partners as the case may be. Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new firm.

The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of 6/14

Numerical Questions · Q33

The following was the Balance Sheet of Arun, Bablu and Chetan sharing profits and losses in the ratio of 6/14 : 5/14 : 3/14 respectively. Balance Sheet:

Liabilities	Amount (₹)	Assets	Amount (₹)
Capital Accounts:		Land and Buildings	24,000
Arun	19,000	Furniture	3,500
Bablu	16,000	Stock	14,000
Chetan	8,000	Debtors	12,600
Creditors	9,000	Cash	900
Bills Payable	3,000
Total	55,000	Total	55,000

They agreed to take Deepak into partnership and give him a share of 1/8 on the following terms:

that Deepak should bring in ₹4,200 as goodwill and ₹7,000 as his Capital;
that furniture be depreciated by 12%;
that stock be depreciated by 10%;
that a Reserve of 5% be created for doubtful debts;
that the value of land and buildings having appreciated be brought up to ₹31,000;
that after making the adjustments the capital accounts of the old partners (who continue to share in the same proportion as before) be adjusted on the basis of the proportion of Deepak's Capital to his share in the business, i.e., actual cash to be paid off to, or brought in by the old partners as the case may be. Prepare Cash Account, Profit and Loss Adjustment Account (Revaluation Account) and the Opening Balance Sheet of the new firm.

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Concept understanding — Admission Partner Adjustments

Let’s start with something you already know from daily life. Suppose you and a friend run a small tiffin service together. After a year, a third friend wants to join. You both agree to let her in. But the business has grown — you have a reputation, some regular customers, and maybe a little cash saved. She can’t just walk in and claim equal share of everything you built before she arrived. That wouldn’t be fair to you and your original partner.

So you sit down and decide: what is the business worth today? How much should the new partner bring in as her share of that past effort? And once she comes in, how do we rewrite the partnership deed so everyone’s rights are clear from Day 1?

That’s the heart of Admission of a Partner — and the adjustments that follow.

What does “Admission Partner Adjustments” mean?

When a new partner is admitted into an existing partnership, the old partnership is dissolved in the eyes of accounting, and a new one begins. The new partner brings in capital (cash or assets) and also buys a share of the goodwill — the value of the business’s reputation and past efforts. But that’s not all. Several things need to be revalued or adjusted so that the new partner doesn’t unfairly gain or lose from past decisions.

These adjustments are:

Revaluation of Assets and Liabilities – because the balance sheet values may be outdated.
Treatment of Goodwill – the new partner compensates old partners for their past efforts.
Adjustment of Reserves and Accumulated Profits/Losses – these belong to old partners only.
Adjustment of Capital Accounts – to bring all partners’ capitals in proportion to the new profit-sharing ratio.

Each of these has a clear accounting treatment. Let’s go through them one by one.

1. Revaluation of Assets and Liabilities

Why? The balance sheet shows assets at book value (historical cost minus depreciation). But the new partner should not benefit from an undervalued asset (like land that has appreciated) nor suffer from an overvalued one. Similarly, liabilities may be understated or overstated.

Accounting treatment:

We open a Revaluation Account (also called Profit & Loss Adjustment Account).

Increase in asset value → debit Asset, credit Revaluation A/c
Decrease in asset value → credit Asset, debit Revaluation A/c
Increase in liability → credit Liability, debit Revaluation A/c
Decrease in liability → debit Liability, credit Revaluation A/c

The net profit or loss on revaluation is transferred to the old partners’ capital accounts in their old profit-sharing ratio.

Note

The new partner does not share in revaluation profit/loss — it belongs entirely to the old partners.

Example format (Revaluation Account):

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

2. Treatment of Goodwill

Why? The new partner is buying a share of the business’s earning power built by old partners. She must compensate them for this.

Accounting treatment (as per NCERT):

The new partner brings her share of goodwill in cash. That cash is then withdrawn by the old partners (or left in the business). The journal entry:

When new partner brings goodwill in cash:

Cash/Bank A/c Dr.

To Goodwill A/c (or Premium for Goodwill A/c)
Then, distribute that amount to old partners in their sacrificing ratio:

Goodwill A/c Dr.

To Old Partners’ Capital A/cs (individually)

Watch out

The sacrificing ratio is the ratio in which old partners give up their share in favour of the new partner. It is not the same as the old ratio unless the new partner’s share is taken equally from all.

Sacrificing Ratio = Old Ratio – New Ratio

If the new partner does not bring cash for goodwill, we adjust through capital accounts (debit the new partner, credit the old partners).

3. Adjustment of Reserves and Accumulated Profits/Losses

Why? Any accumulated profits (like General Reserve, Profit & Loss A/c credit balance) belong to the old partners. The new partner should not get a share of past profits.

Accounting treatment:

Transfer the entire reserve/accumulated profit to old partners’ capital accounts in their old profit-sharing ratio.

Journal entry:

General Reserve A/c Dr.

To Old Partners’ Capital A/cs

Similarly, accumulated losses (debit balance of P&L A/c) are debited to old partners’ capital accounts.

4. Adjustment of Capital Accounts

Why? After all adjustments, the partners’ capitals may not be in the new profit-sharing ratio. The partnership deed may require capitals to be proportionate to profit shares.

Accounting treatment: …

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We first revalue the assets and liabilities as per the terms. The old profit-sharing ratio is Arun 6/14, Bablu 5/14, Chetan 3/14.

Revaluation (Profit & Loss Adjustment Account)

Particulars	Amount (₹)	Particulars	Amount (₹)
To Furniture A/c (12% of 3,500)	420	By Land & Building A/c (31,000 – 24,000)	7,000
To Stock A/c (10% of 14,000)	1,400
To Provision for Doubtful Debts A/c (5% of 12,600)	630
To Profit on Revaluation transferred to:
Arun’s Capital A/c (6/14)	1,950
Bablu’s Capital A/c (5/14)	1,625
Chetan’s Capital A/c (3/14)	975
	7,000		7,000

The gain on revaluation is ₹7,000 – (₹420 + ₹1,400 + ₹630) = ₹4,550. This is distributed among old partners in their old ratio.

Cash Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	900	By Balance c/d	12,100
To Deepak’s Capital A/c	7,000
To Premium for Goodwill A/c	4,200
	12,100		12,100

Deepak brings in ₹7,000 capital and ₹4,200 goodwill. The goodwill is shared by old partners in their sacrificing ratio (same as old ratio, since no change in their mutual share).

Distribution of Goodwill (Premium for Goodwill Account)

Particulars	Amount (₹)	Particulars	Amount (₹)
To Arun’s Capital A/c (6/14)	1,800	By Cash A/c	4,200
To Bablu’s Capital A/c (5/14)	1,500
To Chetan’s Capital A/c (3/14)	900
	4,200		4,200

Capital Accounts of Old Partners (after revaluation and goodwill)

Particulars	Arun	Bablu	Chetan	Particulars	Arun	Bablu	Chetan
To Balance c/d	22,750	19,125	9,875	By Balance b/d	19,000	16,000	8,000
				By Revaluation Profit	1,950	1,625	975
				By Premium for Goodwill	1,800	1,500	900
	22,750	19,125	9,875		22,750	19,125	9,875

Adjustment of Capitals in New Firm

Deepak’s share = 1/8, his capital = ₹7,000. Therefore, total capital of new firm = ₹7,000 × 8 = ₹56,000.

Old partners’ share in new firm = 7/8 (in ratio 6:5:3). Their adjusted capitals should be:

Arun: 6/14 × 7/8 × 56,000 = 6/14 × 49,000 = ₹21,000
Bablu: 5/14 × 49,000 = ₹17,500
Chetan: 3/14 × 49,000 = ₹10,500

Existing capitals (after revaluation & goodwill): Arun ₹22,750, Bablu ₹19,125, Chetan ₹9,875.

Excess/shortfall: …

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Revaluation gives a profit of ₹4,550 (shared 6:5:3). Deepak's ₹7,000 for a 1/8 share fixes total capital at ₹56,000, so the old partners' capitals become Arun ₹21,000, Bablu ₹17,500 and Chetan ₹10,500. Against their adjusted balances, Arun withdraws ₹1,750, Bablu withdraws ₹1,625 and Chetan brings in ₹625. The opening Balance Sheet totals ₹68,000.

Revaluation (Profit & Loss Adjustment) Account

Particulars	Rs.	Particulars	Rs.
To Furniture (12% of 3,500)	420	By Land & Buildings (31,000 - 24,000)	7,000
To Stock (10% of 14,000)	1,400
To Provision for Doubtful Debts (5% of 12,600)	630
To Profit t/f - Arun 1,950; Bablu 1,625; Chetan 975	4,550
	7,000		7,000

Net revaluation profit = 7,000-(420+1,400+630) = ₹4,550, shared 6:5:3 -> Arun ₹1,950, Bablu ₹1,625, Chetan ₹975.

Goodwill

Deepak brings ₹4,200 premium, credited to the old partners in their sacrificing ratio (same as the old ratio 6:5:3): Arun ₹1,800, Bablu ₹1,500, Chetan ₹900.

Capital adjustment

Adjusted capital = opening + revaluation profit + goodwill:

Partner	Opening	Revaluation	Goodwill	Adjusted
Arun	19,000	1,950	1,800	22,750
Bablu	16,000	1,625	1,500	19,125
Chetan	8,000	975	900	9,875

Deepak's ₹7,000 = 1/8 share, so total capital =7,000×8= ₹56,000; the old partners' share (7/8) = ₹49,000, split 6:5:3:

Partner	Required	Adjusted	Cash
Arun	21,000	22,750	Withdraw 1,750
Bablu	17,500	19,125	Withdraw 1,625
Chetan	10,500	9,875	Bring in 625

Cash Account

Particulars	Rs.	Particulars	Rs.
To Balance b/d	900	By Arun's Capital A/c	1,750
To Deepak's Capital A/c	7,000	By Bablu's Capital A/c	1,625

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markMCQ
$Q. Newly admitted partner does not have the right on the assets of the firm. (True/False)$
(a) True
(b) False
›Reveal solutionSolution

False.

When a new partner is admitted, he contributes capital (and usually goodwill) and, in return, becomes entitled to a share in the FUTURE PROFITS and a right in the ASSETS of the firm. Therefore it is wrong to say a newly admitted partner has no right o …

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PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 markMCQ
$Q. J, K, L, M are in partnership sharing profits and losses in ratio of 9 : 6 : 5 : 5. 'N' joins the partnership for 20% share. J, K, L and M would in future share profits among themselves as 3 : 4 : 2 : 1. The new profit sharing ratio will be:$
(a) 3 : 4 : 2 : 1 : 5
(b) 9 : 6 : 5 : 5 : 5
(c) 8 : 6 : 4 : 2 : 5
(d) 6 : 8 : 4 : 2 : 5
›Reveal solutionSolution

(d) 6 : 8 : 4 : 2 : 5.

N joins for 20% = 1/5, so the old partners together keep 4/5. They share that 4/5 in the ratio 3:4:2:1 (total 10): …

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PSEB Punjab Class 12 (Commerce) 2024Set ANNUAL1 markMCQ
$Q. Workmen Compensation Fund is an outside Liability. (True/False)$
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›Reveal solutionSolution

True (to the extent of the claim).

The Workmen Compensation Fund/Reserve is created to meet a possible compensation claim by employees. To the extent a claim actually exists, it represents an amount owed to outsiders (employees) — an outside liability. Any excess over the claim is a free reserv …

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PSEB Punjab Class 12 (Commerce) 2024Set ANNUAL1 mark
$Q. What is meant by admission of a new partner?$
›Reveal solutionSolution

Admission = taking in a new partner into an existing firm, reconstituting it.

When a firm needs more capital or managerial skill, it may admit a new partner. Admission of a partner means adding a new person to an existing partnership, with the consent of all existing partners, in return for a share in the future profits. It changes the old agreement, so the firm is reconstituted; the new partner usually brings in capital and his share of good …

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PSEB Punjab Class 12 (Commerce) 2023Set ANNUAL1 markMCQ
$Q. A new partner is liable for past losses of a firm. (True/False)$
(a) True
(b) False
›Reveal solutionSolution

False.

A new partner is admitted from the date of admission and is liable only for the acts and losses of the firm from that date onwards. He is not responsible for the firm's past losses or past liabilities, unless he expressl …

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PSEB Punjab Class 12 (Commerce) 2023Set ANNUAL1 markMCQ
$Q. When a new partner does not bring his share of Goodwill in cash, amount is debited to:$
(a) Cash Account
(b) Current Account of New Partner
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›Reveal solutionSolution

(b) Current Account of New Partner.

When the incoming partner does not bring his share of goodwill in cash, the amount is adjusted through the capital/current accounts. His Current Account (or Capital Account) is debited and the sacrificing partners' Capital Accounts are credited in the sacrificing ratio. Among the opt …

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Revaluation (Profit & Loss Adjustment) Account

Goodwill

Capital adjustment

Cash Account

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