English Section
Accountancy Chapter 2: Reconstitution of Partnership Firm – Admission of a Partner – Important Topics:
- Modes of Reconstitution of Partnership Firm
- Admission of a New Partner – Rights & Required Adjustments
- New Profit Sharing Ratio – Calculation Methods (6 types)
- Sacrificing Ratio – Meaning & Calculation
- Goodwill – Definition, Factors Affecting Value, Need for Valuation
- Valuation of Goodwill – Average Profit, Super Profit, Capitalisation Methods
- Treatment of Goodwill on Admission (Cash brought, not brought, hidden goodwill, existing goodwill written off)
- Adjustment for Accumulated Profits & Losses (Reserves, P&L Balance)
- Revaluation of Assets & Liabilities – Revaluation Account (Journal Entries, Profit/Loss Transfer)
- Adjustment of Partners’ Capitals (Proportionate to New Profit Sharing Ratio)
- Change in Profit Sharing Ratio among Existing Partners
- Previous Year Exam Questions (2019–2025) with Answers
2.1 Modes of Reconstitution of a Partnership Firm
Simple Explanation: Reconstitution means changing the partnership agreement while the firm continues to exist. The old agreement ends and a new agreement begins. The firm is not dissolved; it simply continues with a changed relationship among partners.
Complementary Explanation: Partnership Act, 1932 allows reconstitution without dissolution. The four main ways are: admission, retirement, death, and change in profit sharing ratio.
💡 Live Example – 1 (Admission): Hari and Haquque share profits 3:2. They admit John as a new partner with 1/6 share. Now the firm has three partners. The firm continues, but the partnership agreement is reconstituted.
💡 Live Example – 2 (Retirement): Roy, Ravi and Rao share profits 2:2:1. Ravi retires due to ill health. Roy and Rao continue the business. This is reconstitution by retirement.
💡 Live Example – 3 (Change in Ratio): Ram, Mohan and Sohan share profits 3:2:1. They decide to share equally from next year. This is reconstitution by change in profit sharing ratio.
💡 Live Example – 4 (Death): X, Y and Z share profits 3:2:1. X dies. Y and Z decide to continue with equal sharing. Reconstitution by death.
💭 Think: Is dissolution of firm a mode of reconstitution?
Simple Hints: No. Reconstitution means firm continues; dissolution means firm ends. They are different.
Simple Hints: No. Reconstitution means firm continues; dissolution means firm ends. They are different.
📘 Definition (Reconstitution): Any change in the existing partnership agreement among the partners that results in the end of the old agreement and the creation of a new agreement, while the firm continues its business, is called reconstitution of the partnership firm.
📝 Exam Practice (1 mark – 2021 Mar): Reconstitution of a partnership happens at the time of
(a) Admission of a partner (b) Retirement of a partner (c) Death of a partner (d) All of these
Answer: (d) All of these.
Hint: Reconstitution occurs in all four events – admission, retirement, death, change in ratio.
(a) Admission of a partner (b) Retirement of a partner (c) Death of a partner (d) All of these
Answer: (d) All of these.
Hint: Reconstitution occurs in all four events – admission, retirement, death, change in ratio.
2.2 Admission of a New Partner – Rights & Adjustments
Simple Explanation: When a firm needs more capital or managerial help, a new partner may be admitted. The new partner gets two main rights: (1) right to share future profits, (2) right to share the assets of the firm. In return, he brings capital and usually a premium for goodwill.
Complementary Explanation: According to Section 31 of the Partnership Act, a new partner can be admitted only with the consent of all existing partners, unless the deed provides otherwise.
📘 Two Main Rights of a New Partner:
- Right to share the future profits of the firm.
- Right to share the assets of the partnership firm.
📝 Exam Practice (2 marks – 2020 Mar & 2021 Say): Enumerate any two rights acquired by a newly admitted partner of a firm.
Answer: 1) Right to share profits of the firm in the agreed ratio. 2) Right to participate in the management of the firm. (Alternatively: Right to share assets.)
Hint: These rights are acquired by bringing capital and sometimes goodwill.
Answer: 1) Right to share profits of the firm in the agreed ratio. 2) Right to participate in the management of the firm. (Alternatively: Right to share assets.)
Hint: These rights are acquired by bringing capital and sometimes goodwill.
Adjustments required at the time of admission:
- New profit sharing ratio & sacrificing ratio
- Valuation and adjustment of goodwill
- Revaluation of assets and liabilities
- Distribution of accumulated profits and losses (reserves)
- Adjustment of partners’ capitals (if agreed)
2.3 New Profit Sharing Ratio – Complete Calculation Methods
Simple Explanation: When a new partner joins, the old partners sacrifice a part of their share in favour of the new partner. We need to find the new ratio for all partners.
Method 1: New partner’s share given – acquired from old partners in their old ratio (implied).
Example (Illustration 1): Anil & Vishal (3:2) admit Sumit for 1/5 share.
Calculation: Sumit’s share = 1/5; Remaining = 4/5.
Anil’s new share = 3/5 of 4/5 = 12/25; Vishal’s new share = 2/5 of 4/5 = 8/25.
New ratio = 12:8:5.
Calculation: Sumit’s share = 1/5; Remaining = 4/5.
Anil’s new share = 3/5 of 4/5 = 12/25; Vishal’s new share = 2/5 of 4/5 = 8/25.
New ratio = 12:8:5.
Method 2: New partner’s share given – acquired from old partners in a specified ratio.
Example (Illustration 2): Akshay & Bharati (3:2) admit Dinesh for 1/5 share, acquired equally from both.
Dinesh’s share = 1/5 = 2/10. Sacrifice: Akshay 1/10, Bharati 1/10.
Akshay’s new = 3/5 – 1/10 = 5/10; Bharati’s new = 2/5 – 1/10 = 3/10.
New ratio = 5:3:2.
Dinesh’s share = 1/5 = 2/10. Sacrifice: Akshay 1/10, Bharati 1/10.
Akshay’s new = 3/5 – 1/10 = 5/10; Bharati’s new = 2/5 – 1/10 = 3/10.
New ratio = 5:3:2.
Method 3: New partner’s share given – acquired in parts from old partners (specific fractions).
Example (Illustration 3): Anshu & Nitu (3:2) admit Jyoti for 3/10 share, 2/10 from Anshu, 1/10 from Nitu.
Anshu’s new = 3/5 – 2/10 = 4/10; Nitu’s new = 2/5 – 1/10 = 3/10; Jyoti = 3/10.
New ratio = 4:3:3.
Anshu’s new = 3/5 – 2/10 = 4/10; Nitu’s new = 2/5 – 1/10 = 3/10; Jyoti = 3/10.
New ratio = 4:3:3.
Method 4: Old partners sacrifice a fraction of their own share.
Example (Illustration 4): Ram & Shyam (3:2). Ram sacrifices 1/4 of his share, Shyam sacrifices 1/3 of his share.
Ram’s sacrifice = 3/5 × 1/4 = 3/20; new = 3/5 – 3/20 = 9/20.
Shyam’s sacrifice = 2/5 × 1/3 = 2/15; new = 2/5 – 2/15 = 4/15.
Ghanshyam’s share = 3/20 + 2/15 = 17/60.
New ratio (LCM 60): 27:16:17.
Ram’s sacrifice = 3/5 × 1/4 = 3/20; new = 3/5 – 3/20 = 9/20.
Shyam’s sacrifice = 2/5 × 1/3 = 2/15; new = 2/5 – 2/15 = 4/15.
Ghanshyam’s share = 3/20 + 2/15 = 17/60.
New ratio (LCM 60): 27:16:17.
Method 5: New partner’s share wholly taken from one partner.
Example (Illustration 5): Das & Sinha (4:1) admit Pal for 1/4 share wholly from Das.
Pal = 1/4; Das new = 4/5 – 1/4 = 11/20; Sinha = 1/5 = 4/20.
New ratio = 11:4:5.
Pal = 1/4; Das new = 4/5 – 1/4 = 11/20; Sinha = 1/5 = 4/20.
New ratio = 11:4:5.
Method 6: New profit sharing ratio is given; we need to find sacrificing ratio.
Example (Illustration 6): Rohit & Mohit (5:3) admit Bijoy for 1/7 share. New ratio = 4:2:1.
Sacrifice = old – new. Rohit = 5/8 – 4/7 = 3/56; Mohit = 3/8 – 2/7 = 5/56. Sacrificing ratio = 3:5.
Sacrifice = old – new. Rohit = 5/8 – 4/7 = 3/56; Mohit = 3/8 – 2/7 = 5/56. Sacrificing ratio = 3:5.
📝 Exam Practice (2 marks – 2022 Say): Kareem and Raheem (2:1) admit Jacob. Kareem surrenders 1/4 of his share, Raheem 1/2 of his share. Calculate new ratio.
Answer: Kareem’s old = 2/3, sacrifice = 2/3×1/4=2/12=1/6, new = 2/3–1/6 = 3/6 = 1/2.
Raheem’s old = 1/3, sacrifice = 1/3×1/2=1/6, new = 1/3–1/6 = 1/6.
Jacob’s share = 1/6+1/6 = 2/6 = 1/3.
New ratio = 1/2 : 1/6 : 1/3 = 3:1:2.
Answer: Kareem’s old = 2/3, sacrifice = 2/3×1/4=2/12=1/6, new = 2/3–1/6 = 3/6 = 1/2.
Raheem’s old = 1/3, sacrifice = 1/3×1/2=1/6, new = 1/3–1/6 = 1/6.
Jacob’s share = 1/6+1/6 = 2/6 = 1/3.
New ratio = 1/2 : 1/6 : 1/3 = 3:1:2.
2.4 Sacrificing Ratio
Simple Explanation: Sacrificing ratio is the ratio in which the old partners agree to sacrifice their share of profit in favour of the new partner. It is used to distribute the goodwill brought by the new partner.
Formula: Sacrificing Ratio = Old Share – New Share (for each old partner).
Example (Illustration 7): Amar & Bahadur (3:2) admit Mary for 1/4 share. New ratio between Amar & Bahadur = 2:1, Mary = 1/4.
Amar’s sacrifice = 3/5 – 2/4 = 2/20; Bahadur’s sacrifice = 2/5 – 1/4 = 3/20.
Sacrificing ratio = 2:3.
Amar’s sacrifice = 3/5 – 2/4 = 2/20; Bahadur’s sacrifice = 2/5 – 1/4 = 3/20.
Sacrificing ratio = 2:3.
Example (Illustration 8): Ramesh & Suresh (4:3) admit Mohan, new ratio 2:3:1.
Ramesh sacrifice = 4/7 – 2/6 = 10/42 (sacrifice); Suresh gain = 3/6 – 3/7 = 3/42 (gain).
Sacrificing ratio only for those who sacrifice.
Ramesh sacrifice = 4/7 – 2/6 = 10/42 (sacrifice); Suresh gain = 3/6 – 3/7 = 3/42 (gain).
Sacrificing ratio only for those who sacrifice.
💭 Think: What if a partner gains rather than sacrifices? Can sacrificing ratio be negative?
Simple Hints: Sacrificing ratio is only for those who sacrifice. Gaining partners are not included in sacrificing ratio. If new ratio is given and an old partner gains, his sacrifice is negative – he is a gaining partner.
Simple Hints: Sacrificing ratio is only for those who sacrifice. Gaining partners are not included in sacrificing ratio. If new ratio is given and an old partner gains, his sacrifice is negative – he is a gaining partner.
📝 Exam Practice (1 mark – 2019 Say): If an incoming partner brings the premium of goodwill in cash, it will be shared by the old partners in:
(a) new profit sharing ratio (b) old profit sharing ratio (c) capital ratio (d) sacrificing ratio.
Answer: (d) sacrificing ratio.
(a) new profit sharing ratio (b) old profit sharing ratio (c) capital ratio (d) sacrificing ratio.
Answer: (d) sacrificing ratio.
2.5 Goodwill – Meaning, Factors, Need for Valuation
Simple Explanation: Goodwill is the value of the reputation of a business. It is an intangible asset that enables the firm to earn super profits compared to other similar businesses.
📘 Definition: Goodwill is the present value of a firm’s anticipated excess earnings (super profits). It arises from factors like location, quality, management, etc.
2.5.2 Factors Affecting the Value of Goodwill (All 5):
- Nature of business: High value added products, stable demand → higher goodwill.
- Location: Central location, heavy customer traffic → higher goodwill.
- Efficiency of management: Well-managed firm → higher profits → higher goodwill.
- Market situation: Monopoly or limited competition → high goodwill.
- Special advantages: Import licences, low-cost electricity, patents, trademarks, long-term contracts → increase goodwill.
💡 Live Example – Location: A shop in a busy market has more goodwill than an identical shop in a remote area.
💡 Live Example – Special advantage: A firm with a government license to import scarce goods enjoys high goodwill.
💡 Live Example – Special advantage: A firm with a government license to import scarce goods enjoys high goodwill.
2.5.3 Need for Valuation of Goodwill (6 circumstances):
- Change in profit sharing ratio among existing partners
- Admission of a new partner
- Retirement of a partner
- Death of a partner
- Dissolution of a firm (sale of business as a going concern)
- Amalgamation of partnership firms
📝 Exam Practice (2 marks – 2020 Mar & 2022 Mar): Briefly explain any two circumstances which need valuation of goodwill in a partnership firm.
Answer: 1) Admission of a new partner – to determine the amount he should pay as premium. 2) Retirement/Death of a partner – to determine the amount payable to the outgoing partner’s legal representative.
Answer: 1) Admission of a new partner – to determine the amount he should pay as premium. 2) Retirement/Death of a partner – to determine the amount payable to the outgoing partner’s legal representative.
2.5.4 Valuation of Goodwill – Methods
Method 1: Average Profits Method
Formula: Goodwill = Average Profits × Number of Years’ Purchase
Example (Illustration 9): Profits: 2013 ₹4,00,000; 2014 ₹3,98,000; 2015 ₹4,50,000; 2016 ₹4,45,000; 2017 ₹5,00,000.
Total = ₹21,93,000; Average = ₹4,38,600; Goodwill (4 years purchase) = ₹17,54,400.
Total = ₹21,93,000; Average = ₹4,38,600; Goodwill (4 years purchase) = ₹17,54,400.
Weighted Average (Illustration 10): When profits have a trend, weights are assigned (1,2,3,4,5).
Goodwill = Weighted Average Profit × Years’ Purchase.
Goodwill = Weighted Average Profit × Years’ Purchase.
Method 2: Super Profits Method
Formulas:
Normal Profit = (Capital Employed × Normal Rate of Return)/100
Super Profit = Average Profit – Normal Profit
Goodwill = Super Profit × Number of Years’ Purchase
Normal Profit = (Capital Employed × Normal Rate of Return)/100
Super Profit = Average Profit – Normal Profit
Goodwill = Super Profit × Number of Years’ Purchase
Example (Illustration 12): Capital = ₹5,00,000; Normal rate = 10%; Average profit = ₹60,000.
Normal profit = ₹50,000; Super profit = ₹10,000; Goodwill (3 years) = ₹30,000.
Normal profit = ₹50,000; Super profit = ₹10,000; Goodwill (3 years) = ₹30,000.
Method 3: Capitalisation Method
(a) Capitalisation of Average Profits:
Capitalised Value = (Average Profit × 100) / Normal Rate of Return
Goodwill = Capitalised Value – Net Assets (Capital Employed)
Capitalised Value = (Average Profit × 100) / Normal Rate of Return
Goodwill = Capitalised Value – Net Assets (Capital Employed)
Example (Illustration 14): Average profit = ₹1,00,000; Normal rate = 10%; Net assets = ₹8,20,000.
Capitalised value = ₹10,00,000; Goodwill = ₹1,80,000.
Capitalised value = ₹10,00,000; Goodwill = ₹1,80,000.
(b) Capitalisation of Super Profits:
Goodwill = (Super Profit × 100) / Normal Rate of Return
Goodwill = (Super Profit × 100) / Normal Rate of Return
Example (same data): Super profit = ₹18,000; Goodwill = ₹18,000 × 100/10 = ₹1,80,000.
📝 Exam Practice (3 marks – 2020 Mar): Profits: 62,000, 58,000, 84,000, 78,000, 80,000. Capital = ₹5,00,000; Normal rate = 12%. Goodwill based on 3 years purchase of super profit.
Answer: Total profit = 3,62,000; Average = 72,400; Normal = 60,000; Super = 12,400; Goodwill = 37,200.
Answer: Total profit = 3,62,000; Average = 72,400; Normal = 60,000; Super = 12,400; Goodwill = 37,200.
2.5.5 Treatment of Goodwill on Admission
Simple Explanation: The new partner compensates the old partners for their sacrifice of share in super profits. This compensation is called premium for goodwill. It is shared by old partners in their sacrificing ratio.
Case 1: New partner brings goodwill in cash (Premium for Goodwill)
📘 Journal Entries:
1) Bank A/c Dr.
To New Partner’s Capital A/c
To Premium for Goodwill A/c
2) Premium for Goodwill A/c Dr.
To Sacrificing Partners’ Capital A/cs (individually)
Alternatively, the premium can be directly credited to sacrificing partners’ capitals by debiting the new partner’s capital account.
1) Bank A/c Dr.
To New Partner’s Capital A/c
To Premium for Goodwill A/c
2) Premium for Goodwill A/c Dr.
To Sacrificing Partners’ Capital A/cs (individually)
Alternatively, the premium can be directly credited to sacrificing partners’ capitals by debiting the new partner’s capital account.
Example (Illustration 16): Sunil & Dalip (5:3) admit Sachin for 1/5 share. Sachin brings ₹20,000 capital and ₹4,000 goodwill. Sacrificing ratio = old ratio = 5:3.
Journal: Bank A/c Dr. 24,000; To Sachin’s Capital 20,000, To Premium for Goodwill 4,000.
Premium for Goodwill Dr. 4,000; To Sunil’s Capital 2,500, To Dalip’s Capital 1,500.
Journal: Bank A/c Dr. 24,000; To Sachin’s Capital 20,000, To Premium for Goodwill 4,000.
Premium for Goodwill Dr. 4,000; To Sunil’s Capital 2,500, To Dalip’s Capital 1,500.
Case 2: When old partners withdraw the goodwill amount (fully or partly)
📘 Additional Journal Entry:
Sacrificing Partner’s Capital A/c Dr.
To Bank A/c
(Amount of goodwill withdrawn)
Sacrificing Partner’s Capital A/c Dr.
To Bank A/c
(Amount of goodwill withdrawn)
Case 3: When goodwill already exists in the books
📘 Additional Journal Entry (write off existing goodwill):
Old Partners’ Capital A/cs (individually) Dr. (in old ratio)
To Goodwill A/c
(Existing goodwill written off)
Old Partners’ Capital A/cs (individually) Dr. (in old ratio)
To Goodwill A/c
(Existing goodwill written off)
Example (Illustration 18): Srikant & Raman (3:2) admit Venkat for 1/3 share. Goodwill valued at ₹24,000, existing goodwill ₹12,000. Venkat brings ₹8,000 goodwill. Entries: (1) Bank Dr. 38,000 to Venkat’s Capital 30,000, Premium 8,000. (2) Premium Dr. 8,000 to Srikant 4,800, Raman 3,200. (3) Srikant Dr. 7,200, Raman Dr. 4,800 to Goodwill 12,000.
Case 4: New partner does not bring goodwill in cash (or partly brings)
📘 Journal Entry (for goodwill not brought):
New Partner’s Current A/c Dr.
To Sacrificing Partners’ Capital A/cs (individually)
(Goodwill not brought by new partner adjusted)
New Partner’s Current A/c Dr.
To Sacrificing Partners’ Capital A/cs (individually)
(Goodwill not brought by new partner adjusted)
Example (Illustration 19): Ahuia & Barua (3:2) admit Chaudhary for 1/5 share (acquired equally). Goodwill ₹30,000. Chaudhary brings only capital ₹16,000, no goodwill.
Entry: Chaudhary’s Current A/c Dr. 30,000; To Ahuia’s Capital 18,000, To Barua’s Capital 12,000.
Entry: Chaudhary’s Current A/c Dr. 30,000; To Ahuia’s Capital 18,000, To Barua’s Capital 12,000.
Case 5: Hidden Goodwill
Simple Explanation: When the value of goodwill is not given but can be inferred from the capital arrangement and profit sharing ratio.
Example (Illustration 22): Hem & Nem (3:2) capitals ₹80,000 & ₹50,000. Sam admitted for 1/5 share, brings ₹60,000 capital. No goodwill given.
Total capital of new firm based on Sam’s capital = ₹60,000 × 5 = ₹3,00,000.
Existing capital (Hem+Nem+Sam) = 80,000+50,000+60,000 = ₹1,90,000.
Hidden goodwill = ₹3,00,000 – ₹1,90,000 = ₹1,10,000. Sam’s share = 1/5 = ₹22,000.
Entry: Sam’s Current A/c Dr. 22,000; To Hem 13,200, To Nem 8,800.
Total capital of new firm based on Sam’s capital = ₹60,000 × 5 = ₹3,00,000.
Existing capital (Hem+Nem+Sam) = 80,000+50,000+60,000 = ₹1,90,000.
Hidden goodwill = ₹3,00,000 – ₹1,90,000 = ₹1,10,000. Sam’s share = 1/5 = ₹22,000.
Entry: Sam’s Current A/c Dr. 22,000; To Hem 13,200, To Nem 8,800.
📝 Exam Practice (2 marks – 2024 Mar): Aswin & Neha (5:3) admit Sachu for 1/4 share. Sachu brings ₹75,000 capital and ₹40,000 goodwill. Give journal entries.
Answer: 1) Bank A/c Dr. 1,15,000; To Sachu’s Capital 75,000, To Premium for Goodwill 40,000.
2) Premium for Goodwill A/c Dr. 40,000; To Aswin’s Capital 25,000, To Neha’s Capital 15,000.
Answer: 1) Bank A/c Dr. 1,15,000; To Sachu’s Capital 75,000, To Premium for Goodwill 40,000.
2) Premium for Goodwill A/c Dr. 40,000; To Aswin’s Capital 25,000, To Neha’s Capital 15,000.
2.6 Adjustment for Accumulated Profits and Losses
Simple Explanation: Reserves, general reserve, credit balance of P&L A/c are accumulated profits earned before the new partner’s admission. These belong to the old partners only. They are transferred to old partners’ capital accounts in their old profit sharing ratio. Similarly, accumulated losses (debit balance of P&L) are written off to old partners’ capital accounts in old ratio.
📘 Journal Entries:
For accumulated profits: General Reserve A/c Dr.; To Old Partners’ Capital A/cs (individually).
For accumulated losses: Old Partners’ Capital A/cs Dr.; To Profit & Loss A/c (Dr. balance).
For accumulated profits: General Reserve A/c Dr.; To Old Partners’ Capital A/cs (individually).
For accumulated losses: Old Partners’ Capital A/cs Dr.; To Profit & Loss A/c (Dr. balance).
Example (Illustration 23): Rajinder & Surinder (4:1) admit Narender. General Reserve ₹20,000; Debit balance of P&L ₹10,000.
Entry: General Reserve Dr. 20,000; To Rajinder 16,000, To Surinder 4,000.
Entry: Rajinder Dr. 8,000, Surinder Dr. 2,000; To P&L A/c 10,000.
Entry: General Reserve Dr. 20,000; To Rajinder 16,000, To Surinder 4,000.
Entry: Rajinder Dr. 8,000, Surinder Dr. 2,000; To P&L A/c 10,000.
2.7 Revaluation of Assets and Reassessment of Liabilities
Simple Explanation: At the time of admission, assets and liabilities are revalued to show their current worth. Any profit or loss on revaluation is transferred to old partners’ capital accounts in their old ratio through the Revaluation Account.
Journal Entries for Revaluation:
📘 Increase in asset value: Asset A/c Dr.; To Revaluation A/c.
📘 Decrease in asset value: Revaluation A/c Dr.; To Asset A/c.
📘 Decrease in liability: Liability A/c Dr.; To Revaluation A/c.
📘 Increase in liability: Revaluation A/c Dr.; To Liability A/c.
📘 Unrecorded asset: Asset A/c Dr.; To Revaluation A/c.
📘 Unrecorded liability: Revaluation A/c Dr.; To Liability A/c.
📘 Transfer of profit on revaluation (credit balance): Revaluation A/c Dr.; To Old Partners’ Capital A/cs (old ratio).
📘 Transfer of loss on revaluation (debit balance): Old Partners’ Capital A/cs Dr.; To Revaluation A/c.
📘 Decrease in asset value: Revaluation A/c Dr.; To Asset A/c.
📘 Decrease in liability: Liability A/c Dr.; To Revaluation A/c.
📘 Increase in liability: Revaluation A/c Dr.; To Liability A/c.
📘 Unrecorded asset: Asset A/c Dr.; To Revaluation A/c.
📘 Unrecorded liability: Revaluation A/c Dr.; To Liability A/c.
📘 Transfer of profit on revaluation (credit balance): Revaluation A/c Dr.; To Old Partners’ Capital A/cs (old ratio).
📘 Transfer of loss on revaluation (debit balance): Old Partners’ Capital A/cs Dr.; To Revaluation A/c.
Complete Example (Illustration 24): A and B (3:2) admit C. Revaluation: Stock reduced by 10% (₹1,500), Furniture revalued ₹9,000 (loss ₹1,000), Plant & Machinery appreciated 10% (₹3,000), Unrecorded investment ₹1,000, Provision for doubtful debts @5% (₹600), Outstanding electricity bill ₹200, Creditor ₹100 not to be claimed. Revaluation profit = ₹800, transferred to A (₹480) and B (₹320).
📝 Exam Practice (2 marks – 2025 Say): A machinery having book value ₹12,000 was sold for ₹14,000 at the time of admission. (a) How much credited to Revaluation A/c? (b) Give journal entry.
Answer: (a) ₹2,000 profit. (b) Cash/Bank A/c Dr. 14,000; To Machinery A/c 12,000, To Revaluation A/c 2,000.
Answer: (a) ₹2,000 profit. (b) Cash/Bank A/c Dr. 14,000; To Machinery A/c 12,000, To Revaluation A/c 2,000.
2.8 Adjustment of Capitals
Simple Explanation: Sometimes partners agree that capitals should be proportionate to the new profit sharing ratio. Usually, the new partner’s capital is taken as the base to determine the total capital of the firm, and then the required capitals of old partners are calculated. Any surplus is withdrawn, any deficit is brought in by the partner.
Example (Illustration 26): A & B (2:1) admit C for 1/4 share. C brings ₹20,000. After adjustments, A’s capital = ₹45,000, B’s capital = ₹15,000. New ratio = 2:1:1. Total capital based on C = ₹20,000 × 4 = ₹80,000.
Required capitals: A = ₹40,000, B = ₹20,000, C = ₹20,000.
Adjustment: A withdraws ₹5,000, B brings ₹5,000.
Required capitals: A = ₹40,000, B = ₹20,000, C = ₹20,000.
Adjustment: A withdraws ₹5,000, B brings ₹5,000.
📘 Journal Entries:
For excess withdrawal: Partner’s Capital A/c Dr.; To Bank A/c.
For deficiency brought in: Bank A/c Dr.; To Partner’s Capital A/c.
For excess withdrawal: Partner’s Capital A/c Dr.; To Bank A/c.
For deficiency brought in: Bank A/c Dr.; To Partner’s Capital A/c.
📝 Exam Practice (3 marks – 2025 Mar): Amal & Balu (3:1) admit Rajesh for 1/5 share. Rajesh brings ₹30,000 capital. Amal’s capital after adjustments = ₹85,000, Balu’s = ₹35,000. Adjust capitals proportionate to new ratio.
Answer: New ratio = 3:1:1. Total capital = ₹30,000 × 5 = ₹1,50,000. Required: Amal = ₹90,000, Balu = ₹30,000. Amal needs ₹5,000 more, Balu has excess ₹5,000. Entry: Balu’s Capital Dr. 5,000; To Amal’s Capital 5,000.
Answer: New ratio = 3:1:1. Total capital = ₹30,000 × 5 = ₹1,50,000. Required: Amal = ₹90,000, Balu = ₹30,000. Amal needs ₹5,000 more, Balu has excess ₹5,000. Entry: Balu’s Capital Dr. 5,000; To Amal’s Capital 5,000.
2.9 Change in Profit Sharing Ratio among Existing Partners
Simple Explanation: Existing partners may decide to change their profit sharing ratio without admission or retirement. This results in some partners gaining and some losing. The gaining partner must compensate the sacrificing partner for the share of goodwill acquired. Adjustments for revaluation of assets, accumulated profits, and capital adjustment are also done in the same way as in admission.
Example (Illustration 30): Dinesh, Ramesh, Suresh (3:3:2) decide to share equally. Goodwill valued at ₹90,000. Revaluation: Fixed assets increased by ₹51,000, stock reduced by ₹8,000, provision for doubtful debts ₹3,000. General reserve ₹80,000. Gain/Sacrifice: Dinesh sacrifices 1/24, Ramesh sacrifices 1/24, Suresh gains 2/24. Adjustment: Suresh’s Capital Dr. 7,500; To Dinesh 3,750, To Ramesh 3,750.
📌 Previous Year Exam Questions (with Answers)
Q1. (2019 Mar – 1 Mark) Complete the following journal entry: _______ A/c Dr. To Cash A/c (The amount of goodwill brought in by the new partner is withdrawn by the existing partners).
Answer: Old Partners’ Capital A/c.
Answer: Old Partners’ Capital A/c.
Q2. (2019 Say – 1 Mark) If an incoming partner brings the premium of goodwill in cash, it will be shared by the old partners in:
(a) new ratio (b) old ratio (c) capital ratio (d) sacrificing ratio.
Answer: (d) sacrificing ratio.
(a) new ratio (b) old ratio (c) capital ratio (d) sacrificing ratio.
Answer: (d) sacrificing ratio.
Q3. (2020 Mar – 1 Mark) Goodwill brought in by the incoming partner in cash is credited to:
(a) old partners’ capital account in sacrificing ratio (b) old partners’ capital account in new ratio (c) new partner’s capital account in gaining ratio (d) new partner’s capital account in new ratio.
Answer: (a) old partners’ capital account in sacrificing ratio.
(a) old partners’ capital account in sacrificing ratio (b) old partners’ capital account in new ratio (c) new partner’s capital account in gaining ratio (d) new partner’s capital account in new ratio.
Answer: (a) old partners’ capital account in sacrificing ratio.
Q4. (2020 Say – 1 Mark) X and Y are partners sharing profits in the ratio 3:2. They admit Z into partnership with 1/5 share. What will be the sacrificing ratio?
Answer: 3:2.
Answer: 3:2.
Q5. (2021 Mar – 1 Mark) Reconstitution of a partnership happens at the time of:
(a) Admission (b) Retirement (c) Death (d) All of these.
Answer: (d) All of these.
(a) Admission (b) Retirement (c) Death (d) All of these.
Answer: (d) All of these.
Q6. (2022 Mar – 1 Mark) The proportion in which existing partners surrender their share of profit in favour of newly admitted partner is called:
(a) Sacrificing ratio (b) Gaining ratio (c) Old ratio (d) New ratio.
Answer: (a) Sacrificing ratio.
(a) Sacrificing ratio (b) Gaining ratio (c) Old ratio (d) New ratio.
Answer: (a) Sacrificing ratio.
Q7. (2022 Mar – 1 Mark) The capitalized value of average profit is ₹5,00,000 and net assets are ₹4,20,000. Goodwill under capitalization method = ?
Answer: ₹80,000.
Answer: ₹80,000.
Q8. (2022 Say – 1 Mark) Goodwill existing in the books at the time of admission of a partner is transferred to the capital accounts of:
(a) old partners in sacrificing ratio (b) all partners in new ratio (c) old partners in old ratio (d) all partners in capital ratio.
Answer: (c) old partners in old ratio.
(a) old partners in sacrificing ratio (b) all partners in new ratio (c) old partners in old ratio (d) all partners in capital ratio.
Answer: (c) old partners in old ratio.
Q9. (2023 Mar – 1 Mark) The present value of a firm’s anticipated excess earnings is ________.
Answer: Goodwill.
Answer: Goodwill.
Q10. (2024 Say – 1 Mark) The excess of actual profit over the normal profit is called ________.
Answer: Super Profit.
Answer: Super Profit.
Q11. (2025 Mar – 1 Mark) If goodwill under capitalisation of super profit @8% normal rate is ₹1,50,000, the amount of super profit is:
Answer: ₹12,000.
Answer: ₹12,000.
Q12. (2025 Say – 1 Mark) New Ratio – Old Ratio = ?
Answer: Gaining Ratio.
Answer: Gaining Ratio.
Q13. (2025 Say – 1 Mark) Complete: Revaluation A/c Dr. To ________.
Answer: To Old Partners’ Capital A/c (in old ratio).
Answer: To Old Partners’ Capital A/c (in old ratio).
Q14. (2022 Say – 2 Marks) Kareem and Raheem (2:1) admit Jacob. Kareem surrenders 1/4 of his share, Raheem 1/2 of his share. Calculate new ratio.
Answer: 3:1:2.
Answer: 3:1:2.
Q15. (2024 Say – 2 Marks) Calculate goodwill at 3 years purchase of average profits: Profits: 50,000; 80,000; (30,000) loss; 60,000.
Answer: Total = 1,60,000; Average = 40,000; Goodwill = 1,20,000.
Answer: Total = 1,60,000; Average = 40,000; Goodwill = 1,20,000.
Q16. (2025 Mar – 2 Marks) L and M (5:3) admit N for 1/10 share acquired equally from L and M. Calculate new ratio.
Answer: 23:13:4.
Answer: 23:13:4.
Q17. (2020 Mar – 3 Marks) Profits: 62,000, 58,000, 84,000, 78,000, 80,000. Capital = ₹5,00,000; Normal rate = 12%. Goodwill based on 3 years purchase of super profit.
Answer: ₹37,200.
Answer: ₹37,200.
Q18. (2022 Mar – 3 Marks) Smitha & Varghese (2:1) admit Soorya for 1/4 share. Calculate new ratio.
Answer: 2:1:1.
Answer: 2:1:1.
Q19. (2023 Mar – 3 Marks) Rosy & Lilly (7:5) admit Jincy for 1/6 share, acquired 1/24 from Rosy and 1/8 from Lilly. New ratio?
Answer: 13:7:4.
Answer: 13:7:4.
Q20. (2025 Mar – 3 Marks) Amal & Balu (3:1) admit Rajesh for 1/5 share. Rajesh brings ₹30,000 capital. Amal’s capital after adjustments = ₹85,000, Balu’s = ₹35,000. Adjust capitals proportionate to new ratio. Give journal entry.
Answer: Balu’s Capital Dr. 5,000; To Amal’s Capital 5,000.
Answer: Balu’s Capital Dr. 5,000; To Amal’s Capital 5,000.
Malayalam Section
അധ്യായം 2: പങ്കാളിത്ത സ്ഥാപനത്തിന്റെ പുനഃസംഘടന - പുതിയ പങ്കാളിയുടെ പ്രവേശനം – പ്രധാന പാഠഭാഗങ്ങൾ:
- പുനഃസംഘടനയുടെ രീതികൾ
- പുതിയ പങ്കാളിയുടെ പ്രവേശനം – അവകാശങ്ങളും ക്രമീകരണങ്ങളും
- പുതിയ ലാഭവിഹിത അനുപാതം – കണക്കുകൂട്ടൽ രീതികൾ (6 തരം)
- ത്യാഗ അനുപാതം – അർത്ഥവും കണക്കുകൂട്ടലും
- ഗുഡ്വിൽ – നിർവചനം, മൂല്യത്തെ ബാധിക്കുന്ന ഘടകങ്ങൾ, മൂല്യനിർണയത്തിന്റെ ആവശ്യകത
- ഗുഡ്വിലിന്റെ മൂല്യനിർണയ രീതികൾ – ശരാശരി ലാഭം, സൂപ്പർ ലാഭം, മൂലധനവൽക്കരണം
- പ്രവേശന സമയത്ത് ഗുഡ്വിലിന്റെ ചികിത്സ (പണം കൊണ്ടുവരുമ്പോൾ, കൊണ്ടുവരാത്തപ്പോൾ, മറഞ്ഞിരിക്കുന്ന ഗുഡ്വിൽ, നിലവിലുള്ള ഗുഡ്വിൽ എഴുതിത്തള്ളൽ)
- സഞ്ചിത ലാഭങ്ങളുടെയും നഷ്ടങ്ങളുടെയും ക്രമീകരണം (റിസർവ്, പി&എൽ ബാലൻസ്)
- ആസ്തികളുടെയും ബാധ്യതകളുടെയും പുനർമൂല്യനിർണയം – റിവാല്യൂവേഷൻ അക്കൗണ്ട്
- പങ്കാളികളുടെ മൂലധന ക്രമീകരണം (പുതിയ ലാഭവിഹിത അനുപാതത്തിന് ആനുപാതികമായി)
- നിലവിലെ പങ്കാളികൾ തമ്മിലുള്ള ലാഭവിഹിത അനുപാതത്തിലെ മാറ്റം
2.1 പങ്കാളിത്ത സ്ഥാപനത്തിന്റെ പുനഃസംഘടന രീതികൾ
ലളിതമായ വിശദീകരണം: പുനഃസംഘടന എന്നാൽ സ്ഥാപനം നിലനിൽക്കെ പങ്കാളിത്ത കരാറിൽ മാറ്റം വരുത്തുക. പഴയ കരാർ അവസാനിക്കുകയും പുതിയ കരാർ നിലവിൽ വരികയും ചെയ്യുന്നു. സ്ഥാപനം പിരിച്ചുവിടപ്പെടുന്നില്ല.
4 പ്രധാന മാർഗ്ഗങ്ങൾ: പുതിയ പങ്കാളിയുടെ പ്രവേശനം, നിലവിലെ പങ്കാളിയുടെ വിരമിക്കൽ, പങ്കാളിയുടെ മരണം, ലാഭവിഹിത അനുപാതത്തിലെ മാറ്റം.
2.3 പുതിയ ലാഭവിഹിത അനുപാതം – കണക്കുകൂട്ടൽ രീതികൾ
പുതിയ പങ്കാളിക്ക് വിഹിതം നൽകുമ്പോൾ പഴയ പങ്കാളികൾ അവരുടെ വിഹിതത്തിന്റെ ഒരു ഭാഗം ത്യജിക്കുന്നു. ഈ ത്യാഗത്തിന്റെ അടിസ്ഥാനത്തിലാണ് പുതിയ അനുപാതം കണക്കാക്കുന്നത്.
ഉദാ: (രീതി 1) അനിലും വിശാലും (3:2) സുമിത്തിനെ 1/5 വിഹിതത്തിന് ചേർക്കുന്നു. പുതിയ അനുപാതം = 12:8:5.
ഉദാ: (രീതി 2) അക്ഷയും ഭാരതിയും (3:2) ദിനേശിനെ 1/5 വിഹിതത്തിന് ചേർക്കുന്നു, തുല്യമായി രണ്ടിൽ നിന്നും. പുതിയ അനുപാതം = 5:3:2.
2.4 ത്യാഗ അനുപാതം
ത്യാഗ അനുപാതം = പഴയ വിഹിതം – പുതിയ വിഹിതം. പുതിയ പങ്കാളി കൊണ്ടുവരുന്ന ഗുഡ്വിൽ ഈ അനുപാതത്തിൽ പഴയ പങ്കാളികൾക്ക് വീതിച്ചു നൽകുന്നു.
2.5 ഗുഡ്വിൽ – ഘടകങ്ങളും മൂല്യനിർണയ രീതികളും
സ്ഥാപനത്തിന്റെ പ്രശസ്തിയുടെ മൂല്യമാണ് ഗുഡ്വിൽ. അമിത ലാഭം നേടാനുള്ള കഴിവിനെ ഇത് പ്രതിനിധീകരിക്കുന്നു.
മൂല്യത്തെ ബാധിക്കുന്ന 5 ഘടകങ്ങൾ: ബിസിനസ്സിന്റെ സ്വഭാവം, സ്ഥാനം, മാനേജ്മെന്റ് കാര്യക്ഷമത, വിപണി സാഹചര്യം, പ്രത്യേക നേട്ടങ്ങൾ.
മൂല്യനിർണയ രീതികൾ: ശരാശരി ലാഭം, സൂപ്പർ ലാഭം, മൂലധനവൽക്കരണം.
2.7 പുനർമൂല്യനിർണയ അക്കൗണ്ട്
പുതിയ പങ്കാളിയുടെ പ്രവേശന സമയത്ത് ആസ്തികളുടെയും ബാധ്യതകളുടെയും നിലവിലെ മൂല്യം കണ്ടെത്തി ക്രമീകരിക്കുന്നു. ലാഭമോ നഷ്ടമോ പഴയ പങ്കാളികളുടെ മൂലധനത്തിലേക്ക് പഴയ അനുപാതത്തിൽ മാറ്റുന്നു.
2.8 മൂലധന ക്രമീകരണം
പുതിയ ലാഭവിഹിത അനുപാതത്തിന് ആനുപാതികമായി പങ്കാളികളുടെ മൂലധനം ക്രമീകരിക്കുന്നു. അധികമുള്ള മൂലധനം പിൻവലിക്കുകയും കുറവുള്ളത് കൊണ്ടുവരികയും ചെയ്യുന്നു.
📝 പരീക്ഷാ ചോദ്യം (2025 Mar – 3 മാർക്ക്): അമലും ബാലുവും (3:1) രാജേഷിനെ 1/5 വിഹിതത്തിന് ചേർക്കുന്നു. രാജേഷ് ₹30,000 മൂലധനം കൊണ്ടുവരുന്നു. ക്രമീകരണത്തിനു ശേഷം അമലിന്റെ മൂലധനം ₹85,000, ബാലുവിന്റേത് ₹35,000. പുതിയ ലാഭവിഹിത അനുപാതത്തിന് ആനുപാതികമായി മൂലധനം ക്രമീകരിക്കുക.
ഉത്തരം: പുതിയ അനുപാതം = 3:1:1. ആകെ മൂലധനം = ₹30,000 × 5 = ₹1,50,000. അമലിന് വേണ്ടത് ₹90,000, ബാലുവിന് ₹30,000. ബാലുവിന്റെ മൂലധനം അധികം ₹5,000; അമലിന് കുറവ് ₹5,000. ജേണൽ: ബാലുവിന്റെ മൂലധനം ഡോ. 5,000; അമലിന്റെ മൂലധനത്തിന് 5,000.
[file content ends]
ഉത്തരം: പുതിയ അനുപാതം = 3:1:1. ആകെ മൂലധനം = ₹30,000 × 5 = ₹1,50,000. അമലിന് വേണ്ടത് ₹90,000, ബാലുവിന് ₹30,000. ബാലുവിന്റെ മൂലധനം അധികം ₹5,000; അമലിന് കുറവ് ₹5,000. ജേണൽ: ബാലുവിന്റെ മൂലധനം ഡോ. 5,000; അമലിന്റെ മൂലധനത്തിന് 5,000.
