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All questions of Unit 3: Admission of a New Partner for CA Foundation Exam

General Reserve at the time of admission of a partner is transferred to ____________ . 
  • a)
    Revaluation Account 
  • b)
    Capital Accounts of all partners, including new partner 
  • c)
    None of the these
  • d)
    Old Partner's Capital Account 
Correct answer is option 'D'. Can you explain this answer?

Srsps answered
Sometimes a firm may have accumulated reserves not yet transferred to the partner's capitals accounts. These are in the form of general reserve, reserve fund etc. The new partner is not entitled to share in these reserves. Hence, at the time of admission, these reserves are transferred to the old partner's capital accounts in their profit sharing ratio.

A and B are partners sharing the profit the ratio of 3:2. They take C as the new partner, who brings in Rs. 25,000 against capital and Rs. 10,000 against goodwill. New profit sharing ratio is 1:1:1. In what ratio will this amount will be shared among the old partners A & B.
  • a)
    8,000:2,000
  • b)
    5,000:5,000
  • c)
    Old partners will not get any share in the goodwill brought in by C
  • d)
    6,000:4,000
Correct answer is option 'A'. Can you explain this answer?

Aman Chaudhary answered
And B?

Let's calculate the new capital brought in by A and B after the addition of C as a partner:

A's new capital = A's old capital + A's share of goodwill
= Rs. 0 + Rs. 10,000
= Rs. 10,000

B's new capital = B's old capital + B's share of goodwill
= Rs. 0 + Rs. 10,000
= Rs. 10,000

Now, let's calculate the new profit sharing ratio among A, B, and C:

Total capital = A's new capital + B's new capital + C's capital
= Rs. 10,000 + Rs. 10,000 + Rs. 25,000
= Rs. 45,000

A's new profit share = (A's new capital / Total capital) * Total profit
= (Rs. 10,000 / Rs. 45,000) * Total profit
= 2/9 * Total profit

B's new profit share = (B's new capital / Total capital) * Total profit
= (Rs. 10,000 / Rs. 45,000) * Total profit
= 2/9 * Total profit

C's profit share = (C's capital / Total capital) * Total profit
= (Rs. 25,000 / Rs. 45,000) * Total profit
= 5/9 * Total profit

Given that the new profit sharing ratio is 1:1:1, we can equate the profit shares of A and B:

2/9 * Total profit = 1/3 * Total profit

Cross-multiplying, we get:

2/9 * Total profit = 1/3 * Total profit
2/9 = 1/3
2 * 3 = 9 * 1
6 = 9

The equation is not true, which means the profit shares of A and B are not equal. Therefore, the given information is inconsistent.

A, B and C are partners sharing profits and losses in the ratio 6:3:3, they agreed to take D into partnership for 1/8th share of profits. Find the new profit sharing ratio.
  • a)
    12:27:36:42.
  • b)
    14:7:7:4.
  • c)
    1:2:3:4.
  • d)
    7:5:3:1.
Correct answer is option 'B'. Can you explain this answer?

Srsps answered
Let the total profit be = 1
D's share = 1/8th of profits = 1/8
Remaining share to be distributed to A,B, and C in the old ratio = 7/8
A's share = 7/8 × 6/12 = 42/96
B's share = 7/8 × 3/12 = 21/96
C's share = 7/8 × 3/12 = 21/96
D's share = 1/8 × 12/12 = 12/96
A:B:C:D = 42:21:21:12
New Profit Sharing Ratio = 14:7:7:4

A and B are partners, sharing profits in the ratio of 5:3. They admit C with 1/5 share in profits, which he acquires equally from both 1/10 from A and 1/10 from B. New profit sharing ratio will be:
  • a)
    21:11:8
  • b)
    20:10:4
  • c)
    15:10:4
  • d)
    None
Correct answer is option 'A'. Can you explain this answer?

Srsps answered
C is acquiring 1/10th equally from both A and B,
A's new share= 5/8 - 1/10= 21/40
B's new share= 3/8 - 1/10= 11/40
C's share= 8/40
New profit-sharing ratio= 21:11:8
Therefore, D is the correct answer.

A, B, and C share profits and Losses in the ratio, of 3:2:1. D is admitted with 1/6 share which he gets entirely from A. New ratio will be:
  • a)
  • b)
    3:1:1:1
  • c)
    2:2:2:1
  • d)
    None
Correct answer is option 'A'. Can you explain this answer?

Ananya Adlakha answered
Old sharing ratio = 3:2:1 new sharing ratio for A = old share - sacrifice = 3/6 - 1/6= 2/6 or 1/3 for B = 2/6 or 1/3 for C = 1/6 for D = 1/6 New sharing ratio = 1/3 : 1/3 : 1/6 : 1/6 ; option 'A'

Amit and Anil are partners sharing profits in the ratio of 5:3 with capital of Rs. 2,50,000 and Rs. 2,00,000. Atul was admitted and would pay Rs. 50,000 as capital and Rs. 16,000 as goodwill for 1/5th profit. Find the balance of capital account after admission of Atul:
  • a)
    2,60,000 : 2,06,000 : 50,000
  • b)
    2,20,000 : 1,82,000 : 66,000
  • c)
    2,92,500 : 2,25,500 : 50,000
  • d)
    2,82,500 : 2,19,500 : 66,000
Correct answer is option 'A'. Can you explain this answer?

Given:
- Amit and Anil are partners sharing profits in the ratio of 5:3 with capital of Rs. 2,50,000 and Rs. 2,00,000.
- Atul was admitted and would pay Rs. 50,000 as capital and Rs. 16,000 as goodwill for 1/5th profit.

To find: The balance of capital account after admission of Atul.

Solution:
1. Calculation of new profit sharing ratio:
- Amit and Anil's total capital = Rs. 2,50,000 + Rs. 2,00,000 = Rs. 4,50,000
- Atul's capital = Rs. 50,000
- Total capital after admission = Rs. 5,00,000
- Atul has been given 1/5th profit, which means he will get 1/6th share in the total profit (since there are now 3 partners).
- So, Atul's profit sharing ratio = 1/6 or 5:25
- Amit and Anil's profit sharing ratio = 5:3 or 25:15
- New profit sharing ratio = 25:15:5 or 5:3:1

2. Calculation of new capital:
- Amit's share in the total capital = 25/44 * Rs. 5,00,000 = Rs. 2,84,090.91
- Anil's share in the total capital = 15/44 * Rs. 5,00,000 = Rs. 1,65,909.09
- Atul's share in the total capital = Rs. 50,000
- Total capital after admission = Rs. 5,00,000
- So, the balance of capital account after admission of Atul is:
Amit: Rs. 2,84,090.91
Anil: Rs. 1,65,909.09
Atul: Rs. 50,000

Therefore, the correct answer is option 'A' - 2,60,000 : 2,06,000 : 50,000.

Rahul and Bajaj are partners sharing profit and loss in the ratio of 1:2. Birla is admitted in partnership for 
  • a)
    1 : 3
  • b)
    2 : 1
  • c)
    3 : 1
  • d)
    1 : 2
Correct answer is option 'D'. Can you explain this answer?

Given, Rahul and Bajaj are partners sharing profit and loss in the ratio of 1:2.

Let the capital of Rahul and Bajaj be R and B respectively.

Their profit sharing ratio is 1:2, which can be written as:

Rahul's share : Bajaj's share = 1/3 : 2/3

Let the capital contributed by Birla be x.

When Birla is admitted, the new profit sharing ratio becomes:

Rahul's share : Bajaj's share : Birla's share = 1/3 : 2/3 : x

It is given that the answer is option 'D', which means the new profit sharing ratio is 1:2:2.

Equating the ratios, we get:

1/3 : 2/3 : x = 1 : 2 : 2

On solving the above equation, we get:

x = Birla's capital = 2B

Therefore, Birla's capital is twice that of Bajaj's capital, which means the new profit sharing ratio is 1:2:2, as given in option 'D'.

A, B, C, D are partners sharing their profits and losses equally. They change their profit sharing ratio to 2:2:1:1. How much will C sacrifice?
  • a)
    1/6
  • b)
    1/12 
  • c)
    1/24 
  • d)
    None
Correct answer is option 'B'. Can you explain this answer?

Solution:

Initial profit sharing ratio = 1:1:1:1

New profit sharing ratio = 2:2:1:1

To find out how much C will sacrifice, we need to compare the old share of C with the new share of C.

Let the total profit of the firm be x.

Initial share of C = (1/4) x

New share of C = (1/6) x

C sacrifice = Initial share of C - New share of C

= (1/4)x - (1/6)x

= (3x - 2x)/12

= x/12

Therefore, C will sacrifice 1/12th of the total profit.

Hence, option B is the correct answer.

A and B are partners sharing profits and losses in the ratio 5:3. They admitted C and agreed to give him 3/10th of the profit. What is the new ratio after C’s admission?
  • a)
    35:42:17.
  • b)
    35:21:24.
  • c)
    49:22:29.
  • d)
    34:20:12.
Correct answer is option 'B'. Can you explain this answer?

Given: A and B are partners sharing profits and losses in the ratio 5:3. They admitted C and agreed to give him 3/10th of the profit.

To find: The new ratio after Cs admission.

Solution:

Let the profit be x.

C's share in the profit = 3/10 x

Remaining profit = x - 3/10 x = 7/10 x

Now, A and B have to share 7/10 x in the ratio 5:3.

A's share = 5/8 * 7/10 x = 7/16 x

B's share = 3/8 * 7/10 x = 21/80 x

C's share = 3/10 x

Therefore, the new ratio of A, B, and C's share in the profit will be:

A:B:C = 7/16 x : 21/80 x : 3/10 x

= 35:21:24 (by cross multiplying)

Hence, the correct option is (b) 35:21:24.

X and Y are sharing profits and losses in the ratio of 3 :2. Z is admitted with 1/5th share in profits of the firm which he gets from X. Now the new profit sharing ratio among X, Y and Z will be _________.
  • a)
    12:8:5
  • b)
    8:12:5
  • c)
    2:2:1
  • d)
    2:2:2
Correct answer is option 'C'. Can you explain this answer?

Madhavan Malik answered
Given: X and Y share profits and losses in the ratio of 3:2.

Z is admitted with 1/5th share in profits of the firm which he gets from X.

To Find: New profit sharing ratio.

Solution:

Let the total profit be 'P'.

Profit share of X and Y = 3P/5 and 2P/5 respectively.

Profit share of Z = 1/5 of X's share = (1/5) × (3P/5) = 3P/25.

Total profit share of X, Y, and Z = 3P/5 + 2P/5 + 3P/25 = 27P/25.

New profit sharing ratio:

X's share = (3P/5 + 3P/25) = 18P/25

Y's share = 2P/5

Z's share = 3P/25

The new profit-sharing ratio of X, Y, and Z is 18:10:3.

Therefore, the correct answer is option (c) 2:2:1.

A and B are partners sharing profits and losses in the ratio of 3:2. A’s Capital is Rs. 60,000 and B’s Capital is Rs. 30,000. They admit C for 1/5th share of profits. How much C should bring in towards his capital?
  • a)
    Rs. 18,000
  • b)
    Rs. 24,000
  • c)
    Rs. 29,000
  • d)
    Rs. 22,500
Correct answer is option 'D'. Can you explain this answer?

Raghav Ghoshal answered
Invests $15,000 and B invests $10,000. The total investment is $25,000.

To calculate the share of profits for A and B, we need to first determine the total profits for the year. Let's say the total profits are $30,000.

A's share of the profits:

3/5 x $30,000 = $18,000

B's share of the profits:

2/5 x $30,000 = $12,000

To calculate the return on investment (ROI) for each partner, we need to divide their share of profits by their initial investment and express it as a percentage.

A's ROI:

($18,000 / $15,000) x 100% = 120%

B's ROI:

($12,000 / $10,000) x 100% = 120%

Both partners have the same ROI of 120%.

A and B are partners sharing profits in the ratio 5:3, they admitted C giving him 3/10th share of profit. If C acquires 1/5th share from A and 1/10th from B, new profit sharing ratio will be:
  • a)
    5:6:3.
  • b)
    2:4:6.
  • c)
    18:24:38.
  • d)
    17:11:12
Correct answer is option 'D'. Can you explain this answer?

Sounak Jain answered
Given:
A and B share profits in the ratio of 5:3
C is given 3/10th share of profit
C acquires 1/5th share from A and 1/10th share from B

To find: New profit sharing ratio

Step-by-step solution:
1. Let the total profit be x
2. A's share in the profit = 5/8 * x
3. B's share in the profit = 3/8 * x
4. C's share in the profit = 3/10 * x
5. C acquires 1/5th share from A, which is (1/5 * 5/8) = 1/8 of the total profit. Hence, A's new share in the profit = 5/8 - 1/8 = 4/8 = 1/2
6. C acquires 1/10th share from B, which is (1/10 * 3/8) = 3/80 of the total profit. Hence, B's new share in the profit = 3/8 - 3/80 = 27/80
7. Add up the new shares of A, B, and C to get the total profit: 1/2 + 27/80 + 3/10 = 17/40
8. New profit sharing ratio: A:B:C = (1/2)/(27/80)/(3/10) = 17:11:12

Hence, the correct answer is option D) 17:11:12.

A and B are partners C is admitted with 1/5th share C brings Rs. 1,20,000 as his share towards capital. The total net worth of the firm is : 
  • a)
    Rs. 1,00,000
  • b)
    Rs. 4,00,000
  • c)
    Rs. 1,20,000
  • d)
    Rs. 6,00,000
Correct answer is option 'D'. Can you explain this answer?

Given, A and B are partners and C is admitted with 1/5th share. C brings Rs. 1,20,000 as his share towards capital.

Let's assume the total capital of the firm be x.

A and B have a share of 4/5th in the firm. So, their total capital will be 4/5 x.

C has a share of 1/5th in the firm. So, his capital will be 1/5 x.

Given, C brings Rs. 1,20,000 as his share towards capital.

Therefore, 1/5 x = Rs. 1,20,000.

Solving this equation, we get x = Rs. 6,00,000.

Hence, the total net worth of the firm is Rs. 6,00,000.

Therefore, the correct answer is option 'D' - Rs. 6,00,000.

X and Y are partners sharing profits in the ratio of 3:1. They admit Z as a partner who pays Rs. 4000 as goodwill, the new profit sharing ratio being 2:1:1 among X, Y, Z. The amount of goodwill will be credited to : 
  • a)
    X and Y as Rs. 3,000 and Rs. 1,000
  • b)
    X only 
  • c)
    Y only 
  • d)
    None
Correct answer is option 'B'. Can you explain this answer?

Saumya Khanna answered
Given data:
Profit sharing ratio of X and Y = 3:1
Z pays Rs. 4000 as goodwill
New profit sharing ratio = 2:1:1 among X, Y, Z

Calculating share of X and Y before admission of Z:
Total profit = 3X + Y
Profit share of X = 3/(3+1) * (3X + Y) = 9X/4 + Y/4
Profit share of Y = 1/(3+1) * (3X + Y) = 3X/4 + Y/4

Calculating share of X, Y, and Z after admission of Z:
Total profit = 2X + Y + Z = X + (9X/4 + Y/4) + (3X/4 + Y/4) + Z
Total profit = 5X/2 + Y/2 + Z
New profit share of X = (9X/4 + Y/4) / (5X/2 + Y/2 + Z) = 9X/(20X + 5Y + 4Z)
New profit share of Y = (3X/4 + Y/4) / (5X/2 + Y/2 + Z) = 5Y/(20X + 5Y + 4Z)
New profit share of Z = Z / (5X/2 + Y/2 + Z) = 4Z/(20X + 5Y + 4Z)

Since Z pays Rs. 4000 as goodwill, it is credited to X’s capital account as per their old profit sharing ratio of 3:1.
Thus, the amount of goodwill will be credited only to X as Rs. 3000 (3/4 * Rs. 4000). Therefore, option B is the correct answer.

A and B carry on business and share profits and losses in the ratio of 3:2. Their respective capital are Rs. 1,20,000 and Rs. 54,000. C is admitted for 1/3rd share in profit and brings Rs. 75,000 as his share of capital. Capitals of A and B to be adjusted according to C’s share. Calculate the amount refunded to A. 
  • a)
    Rs. 30,000
  • b)
    Rs. 32,000
  • c)
    Rs. 15,000
  • d)
    Rs. 28,000
Correct answer is option 'A'. Can you explain this answer?

Arnab Nambiar answered
Since C is admitted for 1/3rd share in profit, the new profit-sharing ratio will be 3:2:1 (A:B:C).

Let the new capital of A and B be x and y respectively. Then,

A's new capital = x
B's new capital = y

Total new capital = x + y + 75000 (C's capital)

According to the question, the new profit-sharing ratio is 3:2:1, which means:

3x/6 + 2y/6 + 1(75000/6) = 0 (since there is no profit in the beginning)

Simplifying the above equation, we get:

x + y + 12500 = 0

We also know that A's old capital is Rs. 1,20,000 and B's old capital is Rs. 54,000. So, we can write:

A's old capital/A's new capital = B's old capital/B's new capital

120000/x = 54000/y

Solving the above equations simultaneously, we get:

x = Rs. 1,50,000
y = Rs. 67,500

Therefore, A's new capital is Rs. 1,50,000 and B's new capital is Rs. 67,500.

Balance sheet prepared after the new partnership agreement, assets and liabilities are recorded at:
  • a)
    Original Value.
  • b)
    Revalued Figure.
  • c)
    At realisable value.
  • d)
    At current cost.
Correct answer is option 'B'. Can you explain this answer?

Jayant Mishra answered
A partnership is a form of business commonly chosen when two or more people decide to form a business together. A partnership is not incorporated and does not have the reporting requirements of a corporation. A partnership must follow generally accepted accounting principles when reporting its financial transactions and creating financial statements. Partnerships use balance sheets and income statements as a way of measuring business profitability, but there are differences you must be aware of when preparing partnership financial statements of revalued figure.

X and Y share profits and losses in the ratio of 4:3. They admit Z in the firm with 3/7 share which he gets 2/7 from X and 1/7 form Y. The new profit sharing ratio will be:
  • a)
    7:3:3
  • b)
    2:2:3
  • c)
    5:2:3
  • d)
    2:3:3
Correct answer is option 'B'. Can you explain this answer?

Poonam Reddy answered
Old ratio (X and Y) = 4 : 3
Z admit for 3/7 share of profit
X sacrifice in favour of Z = 2/7
Y sacrifice in favour of Z = 1/7
New ratio = Old ratio - sacrificing ratiio
X's new ratio = (4/7) - (2/7) = 2/7
Y's new ratio = (3/7) - (1/7) = 2/7
C's share = 3/7
Therefore, new profit sharing ratio of X, Y and Z is 2 : 2 : 3

A and B are partners sharing the profit in the ratio of 3:2. They take C as the new partner, who is supposed to bring Rs. 25,000 against capital and Rs. 10,000 against goodwill. New profit sharing ratio is 1:1:1. C bought cash for his share of Capital and agreed to compensate to A and B outside the firm. How this will be treated in the books of the firm.
  • a)
    Cash bought in by C will only be credited to his capital account.
  • b)
    Goodwill will be raised to full value in old ratio.
  • c)
    Goodwill will be raised to full value in new ratio.
  • d)
    Cash bought by C will be credited to his account and debited with his share of goodwill, which will be debited to A and B’s account in sacrificing ratio.
Correct answer is option 'A'. Can you explain this answer?

Sameer Sharma answered
Treatment of C's capital and goodwill contribution in the books of the firm

Capital Contribution
- C brought Rs. 25,000 against capital.
- The cash brought in by C will only be credited to his capital account.
- Therefore, the entry will be:
- C's Capital A/c Dr. 25,000
- To Cash A/c 25,000

Goodwill Contribution
- C brought Rs. 10,000 against goodwill.
- As per the new profit sharing ratio of 1:1:1, the sacrificing ratio of A and B will be 3:2.
- Therefore, the amount of goodwill to be sacrificed by A and B will be in the ratio of 3:2.
- The total amount of goodwill will be raised to its full value in the old ratio of 3:2.
- However, C's goodwill contribution will not be credited to the goodwill account of the firm.
- Instead, C will compensate A and B outside the firm for their sacrifice.
- Therefore, the entry to record C's goodwill contribution will be:
- C's Capital A/c Dr. 10,000
- To A's Capital A/c 7,500 (3/5 of 10,000)
- To B's Capital A/c 5,000 (2/5 of 10,000)

Conclusion
- C's capital contribution will be credited to his capital account only.
- C's goodwill contribution will not be credited to the goodwill account of the firm.
- A and B's sacrifice of goodwill will be debited to their respective capital accounts in the sacrificing ratio of 3:2.

Profit or loss on revaluation is shared among the partners in ……… ratio.
  • a)
    Old Profit Sharing.
  • b)
    New Profit Sharing.
  • c)
    Capital.
  • d)
    Equal
Correct answer is option 'A'. Can you explain this answer?

Srsps answered
Answer:
The correct answer is Old Profit Sharing.
Explanation:
When a partnership firm revalues its assets and liabilities, it may result in a profit or loss on revaluation. This profit or loss on revaluation is shared among the partners in the Old Profit Sharing ratio. Let's break down the explanation into bullet points:
- Revaluation of assets and liabilities is done to bring their values closer to their current market values.
- The revaluation process may lead to an increase or decrease in the value of assets and liabilities.
- If the revaluation results in a profit (i.e., the value of assets increases or the value of liabilities decreases), this profit is shared among the partners.
- The sharing of profit on revaluation is done based on the Old Profit Sharing ratio.
- The Old Profit Sharing ratio is the ratio in which the partners were sharing the profits before the revaluation.
- On the other hand, if the revaluation results in a loss (i.e., the value of assets decreases or the value of liabilities increases), this loss is also shared among the partners in the Old Profit Sharing ratio.
- The Old Profit Sharing ratio is important because it reflects the partnership agreement and the understanding between the partners regarding the sharing of profits and losses.
In conclusion, the profit or loss on revaluation is shared among the partners in the Old Profit Sharing ratio.

A and B having shares capital of Rs.20,000 each, share profit and losses equally. They admit C as an equal partner and goodwill was valued as Rs. 30,000 (book value NIL). C is to bring in Rs. 20,000 as his capital and the necessary cash towards his share of Goodwill. Goodwill Account will not remain in the books. If profit on revaluation is Rs. 13,000, find the closing balance of the capital account
  • a)
    Rs.31,500: Rs.31,500: Rs.20,000
  • b)
    Rs.31,500: Rs.31,500: Rs.30,000
  • c)
    Rs.26,500: Rs.26,500: Rs.30,000
  • d)
    Rs.20,000: Rs.20,000: Rs.20,000
Correct answer is option 'A'. Can you explain this answer?

Calculation of Capital Account Balance:

Given information:
- A and B have share capital of Rs. 20,000 each.
- A and B share profit and losses equally.
- C is admitted as an equal partner.
- Goodwill is valued at Rs. 30,000 (book value is NIL).
- C brings in Rs. 20,000 as his capital and the necessary cash towards his share of Goodwill.
- Goodwill account will not remain in the books.
- Profit on revaluation is Rs. 13,000.

Step 1: Calculation of New Profit Sharing Ratio:
Since C is admitted as an equal partner, the new profit sharing ratio will be 1:1:1.

Step 2: Allocation of Goodwill:
As per the new profit sharing ratio, the share of Goodwill for each partner will be Rs. 10,000 (30,000/3).

Step 3: Adjusting the Capital Accounts:
- A and B's capital accounts will be adjusted by deducting their share of Goodwill and adding their share of the profit on revaluation.
- C's capital account will be adjusted by adding his capital contribution and his share of the profit on revaluation.

Step 4: Calculation of Closing Capital Account Balance:
The closing balance of each partner's capital account can be calculated as follows:

A's Capital Account:
Opening balance = Rs. 20,000
Less: Share of Goodwill = Rs. 10,000
Add: Share of profit on revaluation = Rs. (13,000/3) = Rs. 4,333.33
Closing balance = Rs. 20,000 - Rs. 10,000 + Rs. 4,333.33 = Rs. 14,333.33

B's Capital Account:
Opening balance = Rs. 20,000
Less: Share of Goodwill = Rs. 10,000
Add: Share of profit on revaluation = Rs. (13,000/3) = Rs. 4,333.33
Closing balance = Rs. 20,000 - Rs. 10,000 + Rs. 4,333.33 = Rs. 14,333.33

C's Capital Account:
Opening balance = Rs. 20,000
Add: Capital contribution = Rs. 20,000
Add: Share of profit on revaluation = Rs. (13,000/3) = Rs. 4,333.33
Closing balance = Rs. 20,000 + Rs. 20,000 + Rs. 4,333.33 = Rs. 44,333.33

Therefore, the closing balance of the capital accounts will be:
A: Rs. 14,333.33
B: Rs. 14,333.33
C: Rs. 44,333.33

Summary:
The closing balance of the capital account is Rs. 14,333.33 for A and B, and Rs. 44,333.33 for C. Hence, the correct option is A) Rs. 31,500: Rs. 31,500: Rs. 20,000.

Which of the following asset is compulsory to revalue at the time of admission of a new partner:
  • a)
    Stock.
  • b)
    Fixed Assets.
  • c)
    Investment.
  • d)
    Goodwill.
Correct answer is option 'D'. Can you explain this answer?

Alok Mehta answered
At the time of admission of  a partner, the assets and liabilities may or may not be revalued depending upon whether there is any increase or decrease in their balances. However, it is necessary to value goodwill of the firm at the time of admission of a partner. We all know that the incoming partner is required to compensate the old partners for their sacrifice by way of his share of goodwill. So, it is goodwill that has to be valued.

A and B are partners sharing the profit in the ratio of 3:2. They take C as the new partner, who is supposed to bring Rs. 25,000 against capital and Rs. 10,000 against goodwill. New profit sharing ratio is 1:1:1. C is able to bring Rs. 30,000 only. How this will be treated in the books of the firm.
  • a)
    A and B will share goodwill bought by C as 4,000:1,000.
  • b)
    Goodwill will be raised to Rs. 15,000 in old profit sharing ratio.
  • c)
    Both.
  • d)
    None.
Correct answer is option 'C'. Can you explain this answer?

Anu Sen answered
 
The correct answer is C. 
At the time of admission of a new partner, When capital goodwill is brought by the new partner it is divided among the partners in their gaining and sacrificing ratio. Calculation of sacrificing ratio:
Sacrificing Ratio =  Old Ratio - New Ratio
A's sacrificing ratio = (3/5) - (1/3) = 4/15
B's sacrificing ratio = (2/5) - (1/3) = 1/15
Therefore, sacrificing ratio of A and B is 4 : 1 or 4000:1000
Since no already existing goodwill is given we assume it to be zero and when the goodwill is zero then the Goodwill is raised at the remaining premium which is not brought in by the partner at its full value.
Which is ₹5000
So value of goodwill is 5000*3=₹15000 which is to be raised in old ratio.

A, B, C are partners sharing profits in ratio of 3:2:1. They agree to admit D into the firm. A, B, and C agreed to give 1/3rd , 1/6th, 1/9th share of their profit. The share of profit of d will be: 
  • a)
    1/10
  • b)
    13/54
  • c)
    12/54
  • d)
    10/55
Correct answer is option 'B'. Can you explain this answer?

Puja Singh answered
Given:
A:B:C = 3:2:1
They agreed to give 1/3, 1/6, and 1/9 share of their profit to D.

To find:
Share of profit of D

Solution:
Let the total profit be x.
Then, the individual profits of A, B, and C will be 3x/6, 2x/6, and x/6 respectively.

Now, they agreed to give 1/3, 1/6, and 1/9 share of their profit to D.
So, D's share of profit = (1/3) × (3x/6) + (1/6) × (2x/6) + (1/9) × (x/6)
= x/4 × (1/2 + 1/6 + 1/9)
= x/4 × (9/18 + 3/18 + 2/18)
= x/4 × (14/18)
= 7x/36

Therefore, the share of profit of D is 7x/36.

To express the answer in the given options:
Share of profit of D = 7x/36 = (7/36) × (1/x) = 13/54

Hence, the correct option is (b) 13/54.

P and Q are partners sharing Profits in the ratio of 2:1. R is admitted to the partnership with effect from 1st April on the term that he will bring Rs. 20,000 as his capital for 1/4th share and pays Rs. 9,000 for goodwill, half of which is to be withdrawn by P and Q. If profit on revaluation is Rs. 6,000 and opening capital of P is Rs. 40,000 and of Q is Rs. 30,000, find the closing balance of each capital.
  • a)
    Rs.47,000: Rs.33,500: Rs.20,000
  • b)
    Rs.50,000: Rs.35,000: Rs.20,000
  • c)
    Rs.40,000: Rs.30,000: Rs.20,000
  • d)
    Rs.41,000: Rs.30,500: Rs.29,000
Correct answer is option 'A'. Can you explain this answer?

Mehul Ghoshal answered
Given information:
- P and Q are partners sharing profits in the ratio of 2:1
- R is admitted to the partnership with effect from 1st April, bringing Rs. 20,000 as his capital for 1/4th share and paying Rs. 9,000 for goodwill, half of which is to be withdrawn by P and Q
- Profit on revaluation is Rs. 6,000
- Opening capital of P is Rs. 40,000 and of Q is Rs. 30,000

Step 1: Calculate the total capital after R's admission
R's capital = Rs. 20,000 for 1/4th share
So, total capital = R's capital * 4 = Rs. 80,000
Goodwill paid by R = Rs. 9,000
Goodwill to be withdrawn by P and Q = Rs. 4,500 (half of Rs. 9,000)
Total capital after R's admission = Rs. 80,000 + Rs. 9,000 - Rs. 4,500 = Rs. 84,500

Step 2: Calculate the new profit sharing ratio
P and Q's ratio = 2:1
R is to get 1/4th share, which is equivalent to 2/8th share
So, the new ratio will be 4:2:2 (P:Q:R)

Step 3: Calculate the revalued capital
Total revaluation profit = Rs. 6,000
Profit sharing ratio = 4:2:2
P's share of profit = 4/8 * Rs. 6,000 = Rs. 3,000
Q's share of profit = 2/8 * Rs. 6,000 = Rs. 1,500
R's share of profit = 2/8 * Rs. 6,000 = Rs. 1,500

P's revalued capital = Opening capital + Share of profit = Rs. 40,000 + Rs. 3,000 = Rs. 43,000
Q's revalued capital = Opening capital + Share of profit = Rs. 30,000 + Rs. 1,500 = Rs. 31,500
R's capital = Rs. 20,000 + Rs. 1,500 (share of profit) = Rs. 21,500

Step 4: Calculate the closing balance of each capital
P's closing balance = Revalued capital + Share of goodwill withdrawn = Rs. 43,000 + Rs. 2,250 (half of Rs. 4,500) = Rs. 45,250
Q's closing balance = Revalued capital + Share of goodwill withdrawn = Rs. 31,500 + Rs. 2,250 (half of Rs. 4,500) = Rs. 33,750
R's closing balance = Revalued capital = Rs. 21,500

Therefore, the closing balances of each capital are Rs. 47,000 for P, Rs. 33,500 for Q, and Rs. 20,000 for R, which is option A.

A and B shares profit and losses equally. They admit C as an equal partner and goodwill was valued as Rs. 30,000 (book value NIL). C is to bring in Rs. 20,000 as his capital and the necessary cash towards his share of Goodwill. Goodwill Account will not remain in the books. What will be the final effect of goodwill in the partner’s capital account?
  • a)
    A & B’s account credited with Rs. 5,000 each. 
  • b)
    All partners’ account credited with Rs. 10,000 each.
  • c)
    Only C’s account credited with Rs. 10,000 as cash bought in for goodwill.
  • d)
    Final effect will be nil in each partner.
Correct answer is option 'A'. Can you explain this answer?

Shivam Chawla answered
Partnership and Goodwill

Partnership refers to a business entity formed by two or more persons who mutually agree to share profits and losses. Goodwill, on the other hand, refers to the intangible value of a business that arises due to its reputation, customer base, and other non-physical assets.

Admission of a New Partner

When a new partner is admitted to a partnership, the existing partners may decide to value the goodwill of the business. In this case, the goodwill is usually paid for by the new partner as part of their capital contribution. The amount paid for goodwill is then distributed among the existing partners in the profit sharing ratio.

Effect on Partners' Capital Accounts

The final effect of goodwill on partners' capital accounts depends on how the amount paid for goodwill is distributed among the partners. In this case, A and B share profits and losses equally and admit C as an equal partner. Goodwill is valued at Rs. 30,000, and C is to bring in Rs. 20,000 as capital and the necessary cash towards their share of goodwill. The Goodwill Account will not remain in the books.

The effect on the partners' capital accounts is as follows:

- A's capital account will be credited with Rs. 5,000 (half of the goodwill amount)
- B's capital account will be credited with Rs. 5,000 (half of the goodwill amount)
- C's capital account will be credited with Rs. 20,000 (capital contribution) and debited with Rs. 10,000 (share of goodwill)

Therefore, the final effect of goodwill on the partners' capital accounts is that A and B's accounts are credited with Rs. 5,000 each.

Reserve appearing in the Balance sheet will be divided among partners during admission in _________ ratio. 
  • a)
    Old
  • b)
    New
  • c)
    Sacrificing 
  • d)
    Gaining 
Correct answer is option 'A'. Can you explain this answer?

Simran Pillai answered
Explanation:

Reserve appearing in the balance sheet is the accumulated profit of the partnership firm. During the admission of a new partner, the existing partners agree to share their profits with the incoming partner. This sharing of profits is done in the old profit-sharing ratio, which is the ratio in which the existing partners were sharing their profits before the admission of the new partner.

The reserve appearing in the balance sheet will be divided among partners during admission in the old ratio because the reserve is an accumulated profit of the partnership firm which belongs to all the partners in the existing profit-sharing ratio.

For example, if the old profit-sharing ratio is A: B: C and the new partner D is admitted, then the reserve appearing in the balance sheet will be divided among partners in the ratio of A: B: C.

Therefore, the correct answer is option 'A', i.e. old ratio.

Conclusion:

During the admission of a new partner, the partners agree to share their profits with the incoming partner in the old profit-sharing ratio. The reserve appearing in the balance sheet is the accumulated profit of the partnership firm which belongs to all the partners in the existing profit-sharing ratio. Therefore, the reserve appearing in the balance sheet will be divided among partners during admission in the old ratio.

A and B are partners sharing profits and losses in the ratio of 3:2 (A’s Capital is Rs. 30,000 and B’s Capital is Rs. 15,000). They admitted C agreed to give 1/5th share of profits to him. How much C should bring in towards his capital?
  • a)
    Rs. 9,000
  • b)
    Rs. 12,000
  • c)
    Rs. 14,500
  • d)
    Rs. 11,250
Correct answer is option 'D'. Can you explain this answer?

Raghav Ghoshal answered
: B). They decide to admit C as a new partner with a 1/5 share in the profits. The new profit sharing ratio becomes A:B:C = 3:2:1/5.

To find the new ratio, we need to convert all the shares into a common denominator. In this case, the common denominator is 5.

The new profit sharing ratio becomes A:B:C = (3/5):(2/5):(1/5).

This means that A will receive 3/5 of the profits, B will receive 2/5 of the profits, and C will receive 1/5 of the profits.

To calculate the actual amounts, we need to know the total profit. Let's say the total profit is $100.

A will receive (3/5) * $100 = $60.
B will receive (2/5) * $100 = $40.
C will receive (1/5) * $100 = $20.

So, A will receive $60, B will receive $40, and C will receive $20.

Amit and Anil are partners of a partnership firm sharing profits in the ratio of 5:3 respectively. Atul was admitted on the following terms: Atul would pay Rs. 50,000 as capital and Rs. 16,000 as Goodwill, for 1/5th share of profit. Machinery would be appreciated by 10% (book value Rs. 80,000) and building would be depreciated by 20% (Rs. 2,00,000). Unrecorded debtors of Rs. 1,250 would be bought into books now and a creditors amounting to Rs. 2,750 died and need not to pay anything to its estate. Find the distribution of profit/loss on revaluation between Amit, Anil and Atul.
  • a)
    Loss – 17,500:10,500:0.
  • b)
    Loss – 14,000:8,400:5,600.
  • c)
    Profits – 17,500:10,500:0.
  • d)
    Profits – 14,000:8,400:5,600.
Correct answer is option 'A'. Can you explain this answer?

Sameer Sharma answered
Given data:
- Amit and Anil share profits in the ratio of 5:3
- Atul brings in capital of Rs. 50,000 and pays Rs. 16,000 as goodwill for 1/5th share of profit
- Machinery is appreciated by 10% (book value Rs. 80,000)
- Building is depreciated by 20% (Rs. 2,00,000)
- Unrecorded debtors of Rs. 1,250 are bought into books now
- Creditors amounting to Rs. 2,750 died and need not to pay anything to its estate

Revaluation of Assets and Liabilities:
- Machinery: 10% appreciation, so new book value = Rs. 80,000 + 10% of 80,000 = Rs. 88,000
- Building: 20% depreciation, so new book value = Rs. 2,00,000 - 20% of 2,00,000 = Rs. 1,60,000
- Debtors of Rs. 1,250 are added to the books
- Creditors of Rs. 2,750 are eliminated from the books

Calculation of New Profit Sharing Ratio:
- Amit and Anil's old ratio = 5:3, total 8 parts
- Atul's share = 1/5th, which is 2 parts
- Total new ratio = 8 + 2 = 10 parts
- Amit's share = 5/10 = 1/2
- Anil's share = 3/10
- Atul's share = 2/10 = 1/5

Calculation of Revaluation Profit/Loss:
- Machinery: Appreciation of Rs. 8,000 (88,000 - 80,000)
- Building: Depreciation of Rs. 40,000 (2,00,000 - 1,60,000)
- Total revaluation loss = Rs. 32,000 (8,000 + 40,000 - 1,250 + 2,750)
- Loss to be distributed in old ratio of 5:3 = Rs. 17,500:10,500
- Atul joined after revaluation, so he does not share in this loss

Distribution of Profit/Loss on Revaluation:
- Amit's share of loss = 5/8 x 17,500 = Rs. 10,937.50
- Anil's share of loss = 3/8 x 17,500 = Rs. 6,562.50
- Atul does not share in this loss, as he joined after the revaluation

Therefore, the correct answer is option A, i.e. Loss 17,500:10,500:0.

Can you explain the answer of this question below:

A, B, C are equal partners, they wanted to change the profit sharing ratio into 4:3:2. They raised the goodwill to Rs. 90,000 but want to write it off immediately. The effected accounts will be : 

  • A:

    C’s Capital A/c Dr. 10,000To A’s Capital A/c 10,000

  • B:

    B’s Capital A/c Dr. A/c 10,000To A’s Capital A/c 10,000

  • C:

    C’s Capital A/c Dr. 10,000To B’s Capital A/c 10,000

  • D:

    A’s Capital A/c Dr. 10,000To C’s Capital A/c 10,000

The answer is d.

Arka Kaur answered
The effect of the change in profit sharing ratio and writing off of goodwill will be on the capital accounts of the partners.

Initially, all three partners had equal capital, so let's assume each partner had a capital of Rs. x.

After changing the profit sharing ratio to 4:3:2, the new capital contribution of each partner will be:
A = 4x/(4+3+2) = 4x/9
B = 3x/9 = x/3
C = 2x/9

The total capital of the firm will remain unchanged at 9x/9 = x.

Now, the partners have decided to write off the goodwill of Rs. 90,000 immediately. This means that the goodwill account will be closed and its balance will be transferred to the capital accounts of the partners according to their new profit sharing ratio.

The journal entry to write off the goodwill will be:

Goodwill account Dr. 90,000
To A's capital account 40,000
To B's capital account 30,000
To C's capital account 20,000

This entry reduces the value of the goodwill account to zero and increases the capital accounts of the partners according to their new profit sharing ratio.

Therefore, the accounts that will be affected by the change in profit sharing ratio and writing off of goodwill are the capital accounts of A and C, as they will receive a credit balance of Rs. 40,000 and Rs. 20,000 respectively due to the transfer of goodwill.

A and B share profits in the ratio of 3:2. A’s capital is Rs. 48,000 B’s capital is Rs. 32,000. C is admitted for 1/5th share in profits. What is the amount of capital which C should bring?
  • a)
    Rs. 20,000
  • b)
    Rs. 16,000
  • c)
    Rs. 1,00,00
  • d)
    Rs. 64,000
Correct answer is option 'A'. Can you explain this answer?

Tanvi Pillai answered
's capital is Rs. 30,000 and B's capital is Rs. 20,000. Find the total profit earned and the share of each.

Total capital = Rs. 30,000 + Rs. 20,000 = Rs. 50,000

Ratio of profit sharing = 3:2

Let the profit be x.

A's share = 3/5 * x

B's share = 2/5 * x

A's capital ratio = 30,000/50,000 = 3/5

B's capital ratio = 20,000/50,000 = 2/5

Therefore, A's share = 3/5 * x = (3/5) * (5/5) * Rs. x = 3x/5

And B's share = 2/5 * x = (2/5) * (5/5) * Rs. x = 2x/5

Total profit earned = A's share + B's share = 3x/5 + 2x/5 = 5x/5 = Rs. x

Therefore, the total profit earned is Rs. x.

And A's share is 3x/5 and B's share is 2x/5.

R and S are partners sharing profits in the ratio of 5:3. T joins the firm. R gives 1/4th of his share and S gives, 1/5th of his share to the new partner. Find out new ratio:
  • a)
    75:48:37
  • b)
    45:32:27
  • c)
    13:7:4
  • d)
    None
Correct answer is option 'A'. Can you explain this answer?

Rajveer Yadav answered
Given, R and S are partners sharing profits in the ratio of 5:3. Let their profits be 5x and 3x respectively.

When T joins the firm, R gives 1/4th of his share, i.e., (1/4)×5x = 5x/4 to the new partner. Similarly, S gives 1/5th of his share, i.e., (1/5)×3x = 3x/5 to the new partner.

Now, the new ratio of profits will be (5x-5x/4):(3x-3x/5):y, where y is the new partner's share.

Simplifying, we get (20x/4-5x/4):(15x/5-3x/5):y
= (15x/4):(12x/5):y
= (15x×5×y):(12x×4×y):(y×4×5)
= 75:48:37

Therefore, the new ratio of profits is 75:48:37.

A and B are partners sharing the profit in the ratio of 3:2. They take C as the new partner, who is supposed to bring Rs. 25,000 against capital and Rs. 10,000 against goodwill. New profit sharing ratio is 1:1:1. C is able to bring Rs. 30,000 only. How this will be treated in the books of the firm.
  • a)
    A and B will share goodwill brought by C as Rs. 4,000: Rs.1,000
  • b)
    Goodwill not brought, will be adjusted to the extent of Rs.5,000 in sacrificing ratio.
  • c)
    Both
  • d)
    None
Correct answer is option 'B'. Can you explain this answer?

Lekshmi Mehta answered
Treatment of C's contribution in the books of the firm:

1. Calculation of new capital of partners:
- A's capital = (3/5)*(25000+10000) = Rs. 18,000
- B's capital = (2/5)*(25000+10000) = Rs. 12,000
- C's capital = Rs. 30,000

2. Calculation of new profit sharing ratio:
- A:B:C = 1:1:1

3. Calculation of new share of profit:
- Total profit = Old profit + Goodwill
- Goodwill = C's goodwill contribution - Actual goodwill = Rs. 10,000 - Rs. 5,000 = Rs. 5,000
- New profit = Rs. 5,000
- A's share = Rs. 5,000*(1/3) = Rs. 1,667
- B's share = Rs. 5,000*(1/3) = Rs. 1,667
- C's share = Rs. 5,000*(1/3) = Rs. 1,667

4. Adjustment of goodwill:
- As per the new profit sharing ratio, A and B will have to sacrifice their share of profit in the ratio of 3:2.
- Sacrifice of A = Rs. 1,667*(3/5) = Rs. 1,000
- Sacrifice of B = Rs. 1,667*(2/5) = Rs. 667
- Total sacrifice = Rs. 1,667
- As the actual goodwill is only Rs. 5,000, the remaining Rs. 3,333 (Rs. 5,000 - Rs. 1,667) cannot be adjusted.
- Therefore, the unadjusted goodwill will be written off to the old partners' capital accounts in the sacrificing ratio.
- A's share of unadjusted goodwill = Rs. 3,333*(3/5) = Rs. 2,000
- B's share of unadjusted goodwill = Rs. 3,333*(2/5) = Rs. 1,333
- A's new capital = Rs. 18,000 + Rs. 2,000 - Rs. 1,000 = Rs. 19,000
- B's new capital = Rs. 12,000 + Rs. 1,333 - Rs. 667 = Rs. 12,666

Chapter doubts & questions for Unit 3: Admission of a New Partner - Accounting for CA Foundation 2025 is part of CA Foundation exam preparation. The chapters have been prepared according to the CA Foundation exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for CA Foundation 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.

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