Adjusted Capital Calculation in a Partnership Firm

Partnership firms distribute profits among the partners as per their agreed profit-sharing ratio. However, when a new partner is admitted or an existing partner withdraws from the firm, the capital accounts of all the partners need to be adjusted. Here is how to calculate the adjusted capital in a partnership firm.

Given Data:

- A and B are partners in a firm with a profit-sharing ratio of 11:4.
- C is a new partner who is admitted for a 1/5 share in profits.
- C brings 150000 as premium, half of which is withdrawn by partners.

Calculation Steps:

1. Calculate the total profit sharing ratio of the firm after the admission of the new partner.

- Total profit sharing ratio = 11 + 4 + 1/5 = 56/5

2. Calculate the share of C in the total profits.

- C's share = (1/5) / (56/5) = 1/56

3. Calculate the total profits of the firm.

- Let the total profits be X.
- Then, A's share = 11/56 X, B's share = 4/56 X, C's share = 1/56 X.

4. Calculate the adjusted capital of A and B after withdrawing half of the premium.

- Let A's capital be A and B's capital be B.
- A = 11/15 (150000/2) + 11/56 X
- B = 4/15 (150000/2) + 4/56 X

5. Calculate the adjusted capital of C after paying the premium.

- Let C's capital be C.
- C = 150000/2 - 150000/5 + 1/56 X

6. Calculate the total adjusted capital of the firm.

- Total adjusted capital = A + B + C

Explanation:

The above calculation steps show how to adjust the capital accounts of the partners in a partnership firm after admitting a new partner and withdrawing the premium. The profit-sharing ratio of the firm is recalculated based on the new partner's share in profits. Then, the total profits of the firm are calculated, and the shares of each partner are determined. Finally, the capital accounts of the partners are adjusted by adding or subtracting the premium and profits as per their agreed ratios. The total adjusted capital of the firm represents the total amount of money that the partners have invested in the business, and it forms the basis for further calculations such as interest on capital, drawings, etc.

Premium given to a = 150000 x 11/15 = 110000