Ram and Shyam are partners sharing profits and losses in the ratio of 3:2. The Balance Sheet of the firm as at 31 st March, 2025 stood as under:…
CA Foundation · Accounting · PYQS · January 2026
Ram and Shyam are partners sharing profits and losses in the ratio of 3:2. The Balance Sheet of the firm as at 31 st March, 2025 stood as under: Liabilities Amount (₹) Assets Amount (₹) Capital Accounts: Fixed Assets 6,00,000 Ram 2,40,000 Investments 1,00,000 Shyam 1,60,000 Inventories 3,25,000 Long Term Loan 4,50,000 Trade Receivables 1,25,000 Current Liabilities 5,00,000 Loans and Advances 2,00,000 Total 13,50,000 Total 13,50,000 Due to financial difficulties, it was decided to admit Mohan as a Partner in the firm from 1 st April, 2025 on the following terms: (i) Mohan would be paid 40% share in the profits. The new profit sharing ratio after the admission of Mohan would be7:5:8. (ii) Mohan will bring - 2,00,000 towards capital in cash. (iii) On the admission of Mohan, the goodwill of the firm will be valued at 2 years' purchase of 3 years normal average profits of the firm. Mohan will bring his share of goodwill in cash. The partners will neither withdraw their share of goodwill nor will the goodwill appear in the books of account. The profits of the previous three years were as follows: 2022-2340,000 (Profit) (includes insurance claim of 80,000) 2023-2420,000 (Loss) (includes Voluntary retirement compensation of 2,20,000) 2024-251,00,000 (Profit) (includes profit of 50,000 on sale of fixed assets) It was decided to revalue the assets on 31 March, 2025 as under: Fixed Assets - 8,00,000 Investments ₹ Nil Inventory - 2,96,000 Of the Trade Receivables, 5,000 are considered as irrecoverable and a further5% is to be provided for bad and doubtful debts. You are required to prepare the Revaluation Account, Partners' Capital Accounts and Balance Sheet as on 1 st April, 2025 after the admission of Mohan.
Suggested Answer and Working Notes:
In the books of Ram and Shyam Revaluation Account Particulars ₹ Particulars ₹ To Investments A/c 1,00,000 By Fixed assets A/c 2,00,000 To Inventory A/c 29,000 To Bad Debts 5,000 To Prov for Doubtful Debts 6,000 To Partner’s capital A/c: (Profit on revaluation) Ram (3/5) 36,000 Shyam (2/5) 24,000 60,000 2,00,000 2,00,000 Partners’ Capital Accounts Particulars Ram ₹ Shyam ₹ Mohan ₹ Particulars Ram ₹ Shyam ₹ Mohan ₹ To Balance c/d 3,11,000 2,05,000 2,00,000 By Balance b/d 2,40,000 1,60,000 By Bank A/c 2,00,000 By Revaluation A/c (Profit) 36,000 24,000 By Bank/ Premium on Goodwill A/c (WN) 35,000 21,000 3,11,000 2,05,000 2,00,000 3,11,000 2,05,000 2,00,000 Balance Sheet (after admission of Mohan) as at 1 st April, 2025 Liabilities Amount ₹ Assets Amount ₹ Capital accounts: Fixed assets 8,00,000 Ram 3,11,000 Trade Receivable 1,14,000 Shyam 2,05,000 Mohan 2,00,000 7,16,000 Loans & advances 2,00,000 Long term loan 4,50,000 Inventories 2,96,000 Current liabilities 5,00,000 Bank Balance 2,56,000 16,66,000 16,66,000 Working Notes: 1. Calculation of Goodwill Calculation of Profit/ Loss for the year ended 2022-23 2023-24 2024-25 Profit/(loss) for the year 40,000 (20, 000) 1,00,000 Add/(less): Abnormal items (80, 000) 2,20,000 (50, 000) Net Profit/(loss) (40, 000) 2,00,000 50,000 Average profit = (40, 000)+2,00,000+50,000/3 = 70,000 Two years’ purchase of average profits = 70,000 x 2= 1,40,000 Goodwill to be brought in by Mohan = 1,40,000 x 40%= 56,000 2. Goodwill Sacrifice or Gain calculation: Goodwill brought in by Mohan shared (at the profit sacrificing ratio) by: Particulars ₹ Ram (₹ 56,000 x 5/8) 35,000 Shyam (₹ 56,000 x 3/8) 21,000 56,000 Calculation of profit sacrificing ratio Profit sacrificed by Ram =60%-35%=25% Profit sacrificed by Shyam =40%-25%=15% Sacrificing ratio =25%:15% or5:3 Alternatively Gain/Sacrifice of Goodwill can be calculated as: Ram Shyam Mohan Credit in Old Ratio 84,000 56,000 Debit in New Ratio (49, 000) (35, 000) (56, 000) Difference (+sacrifice) (-tv Gain) 35,000 Cr. 21,000 Cr. (56, 000) Dr.
Topics: Admission of a New Partner
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