Test: Admission Of A Partner - 1 - Commerce MCQ

The main purpose of admission of a new partner is to increase the capital of the firm. When old partners feel that the capital they have employed in the business is not enough for the future growth of the business. They may admit a new partner to maintain or to build up the financial strength of the business.

When a new partner is admitted into a partnership business. He gets following rights:
1.Right to share future profits of the firm
2.Right to share in the assets of the firm
New partner is not entitled to the profits and other incomes earned by a partnership business before his admission

A new partner can be admitted in the partnership firm only with the consent of all the existing partners. A new partner cannot be admitted if all existing partners are not ready to admit him as a partner.

Goodwill existing in the old balance sheet of a partnership firm before admitting a new partner will be written off by the old partners in their old profit sharing ratio. A new partner cannot be debited for the same.

Calculation of sacrificing ratio of partners:
Old Ratio = 2:1
New Ratio = 3:1:1
Sacrificing Ratio = A : 2/3 – 3/5 = 1/15
B : 1/3 – 1/5 = 2/15

REPORT ERROR

Let's assume the initial profit of the firm is x.
Initially, A and B share the profit in the ratio 1:2. So, A's share is (1/3) * x and B's share is (2/3) * x.
Now, they admit C into the partnership and decide to give him 1/3rd share of the future profits.
So, C's share is (1/3) * (1/3) * x = (1/9) * x.
The new ratio of the partners will be:
A : B : C = A's share : B's share : C's share
A : B : C = (1/3) * x : (2/3) * x : (1/9) * x
Simplifying the ratio, we get:
A : B : C = 3x : 6x : x
Dividing by x, we get:
A : B : C = 3 : 6 : 1
So, the new ratio of the partners is 3 : 6 : 1.
Therefore, the correct answer is B: It is 2:4:3

Debiting the Bank Account for Chander's Share of Goodwill
To determine which account should be debited when Chander brings Rs 20000 for his share of goodwill, let's analyze the given options:

1. Profit A/c: This account is used to record the profits earned by the business. Since Chander is bringing money as his share of goodwill, it is not related to the profits of the business. Therefore, we can eliminate this option.



2. Goodwill A/c: Goodwill is an intangible asset that represents the reputation and value of a business. When Chander brings money for his share of goodwill, it does not affect the goodwill account directly. Hence, this option can be eliminated as well.



3. Partner's account: This account is used to record the transactions related to the partners' capital, drawings, and profits. When Chander brings money for his share of goodwill, it is an individual transaction and not related to the partner's capital. Thus, we can eliminate this option.



4. Bank A/c: This account represents the bank balance of the business. When Chander brings Rs 20000 for his share of goodwill, the money is received by the business and increases the bank balance. Therefore, the correct option is to debit the Bank A/c.

So, in this case, the Bank A/c should be debited when Chander brings Rs 20000 for his share of goodwill.

Explanation:
To determine the role of B in this scenario, let's analyze the given information:
- A, a contractor, appointed B to manage his entire work.
- It was agreed that B would receive 50% of the profits as his remuneration.
- B would bear all the losses, if any.
Based on this information, we can conclude that B is A's agent. Here's why:
1. Agent Relationship:
- B has been appointed by A to manage his work. This indicates an agency relationship, where B acts on behalf of A.
2. Profit Sharing:
- B is entitled to receive 50% of the profits as remuneration. This suggests that B is working on behalf of A and sharing in the profits generated by A's work.
3. Loss Bearing:
- B has agreed to bear all the losses, if any. This further emphasizes the agency relationship, as B is taking on the risk on behalf of A.
Therefore, based on the given information, B is A's agent.

The correct answer is B.

Land and building is an asset. Revaluation account considers only the changes in assets and liabilities. So since land and building was ₹90300 earlier and now it is to be brought up to ₹119700. This means the value of land and building is increased. So revaluation will consider only the increased amount and not the whole value of building . So increased amount is 119700-90300=₹29400

Calculation of sacrificing ratio of partners:
Old Ratio = 2:1
New Ratio of A and B = 1:2
New Ratio of A, B and C will be : 1 – 1/5 = 4/5
A’s new share = 1/3 × 4/5 = 4/15
B’s new share = 2/3 × 4/5 = 8/15
C’s Share 1/5 OR 3/15
New Ratio 4 : 8: 3
Sacrificing Ratio = A : 2/3 – 4/15= 6/15
B : 1/3 – 8/15 = 3/15 Gain