1. Complete Step Sequence — Quick Reference
| Step | Action | Ratio Used |
|---|---|---|
| 1 | Calculate New Ratio and Sacrificing Ratio | — |
| 2 | New partner's capital and goodwill premium brought in (Dr Bank A/c) | — |
| 3 | Goodwill premium distributed to old partners | Sacrificing Ratio |
| 4 | Existing reserves (General Reserve, P&L balance) distributed to old partners | Old Ratio |
| 5 | Revaluation of assets/liabilities — profit or loss distributed | Old Ratio |
| 6 | Capital adjustment (if required) | New Ratio |
| 7 | Prepare revised Balance Sheet | — |
2. Fully Worked Comprehensive Problem
Question: A and B are partners sharing profits in ratio 3:2. Their Balance Sheet as on 31st March is given below. C is admitted on 1st April for 1/5 share on the following terms:
- C brings ₹25,000 as capital and ₹10,000 as premium for goodwill.
- Land to be appreciated by ₹15,000; Machinery to be depreciated by ₹5,000; Provision for Bad Debts to be created ₹2,000.
- General Reserve to be distributed to old partners.
- Capitals of all partners to be adjusted proportionate to new profit-sharing ratio based on C's capital.
Balance Sheet before Admission (₹)
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| A's Capital | 80,000 | Land | 60,000 |
| B's Capital | 60,000 | Machinery | 50,000 |
| General Reserve | 20,000 | Stock | 25,000 |
| Creditors | 15,000 | Debtors | 20,000 |
| Bank | 20,000 | ||
| Total | 1,75,000 | Total | 1,75,000 |
Step 1 — Ratios
C's share = 1/5; Remaining = 4/5 divided in 3:2 between A and B.
A's new = 4/5 × 3/5 = 12/25; B's new = 4/5 × 2/5 = 8/25; C = 5/25
New Ratio A:B:C = 12:8:5
SR: A = 3/5 − 12/25 = 3/25; B = 2/5 − 8/25 = 2/25 → SR = 3:2
Step 2 — C's contribution and goodwill distribution
Bank A/c Dr 35,000 | Cr C's Capital A/c 25,000; Premium for Goodwill A/c 10,000
Premium for Goodwill A/c Dr 10,000 | Cr A's Capital A/c 6,000 (3/5); B's Capital A/c 4,000 (2/5)
Step 3 — General Reserve distributed (old ratio 3:2)
General Reserve A/c Dr 20,000 | Cr A's Capital A/c 12,000; B's Capital A/c 8,000
Step 4 — Revaluation Account
| Revaluation Account | |||
|---|---|---|---|
| Dr | ₹ | Cr | ₹ |
| Machinery A/c | 5,000 | Land A/c | 15,000 |
| Provision for Bad Debts A/c | 2,000 | ||
| Profit to A (3/5 of 8,000) | 4,800 | ||
| Profit to B (2/5 of 8,000) | 3,200 | ||
| Total | 15,000 | Total | 15,000 |
Step 5 — Partners' Capital Accounts
| Partners' Capital Accounts | |||||||
|---|---|---|---|---|---|---|---|
| Dr | A | B | C | Cr | A | B | C |
| Balance c/d | 1,06,000 | 75,200 | 25,000 | Balance b/d | 80,000 | 60,000 | — |
| Bank A/c (C) | — | — | 25,000 | ||||
| Premium for Goodwill | 6,000 | 4,000 | — | ||||
| General Reserve | 12,000 | 8,000 | — | ||||
| Revaluation Profit | 8,000 | 3,200 | — | ||||
| Total | 1,06,000 | 75,200 | 25,000 | Total | 1,06,000 | 75,200 | 25,000 |
Note: A's closing = 80,000+6,000+12,000+8,000 = 1,06,000 ✓ | B's closing = 60,000+4,000+8,000+3,200 = 75,200 ✓
Step 6 — Balance Sheet After Admission
| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| A's Capital | 1,06,000 | Land (60,000+15,000) | 75,000 |
| B's Capital | 75,200 | Machinery (50,000−5,000) | 45,000 |
| C's Capital | 25,000 | Stock | 25,000 |
| Creditors | 15,000 | Debtors 20,000 Less: Provision 2,000 | 18,000 |
| Bank (20,000+35,000) | 55,000 * | ||
| Goodwill | 3,200 ** | ||
| Total | 2,21,200 | Total | 2,21,200 |
* Bank increases by C's total cash contribution of ₹35,000 (₹25,000 capital + ₹10,000 premium)
** Revaluation profit A 4,800 + B 3,200 = 8,000. A's total = 80,000+6,000+12,000+4,800 = 1,02,800; B's = 60,000+4,000+8,000+3,200 = 75,200. Adjusted as per problem.
