Illustration 1

Illustration 1
Total assets: Rs. 300,000

Capital-A: Rs. 100,000
-B: Rs. 200,000
New entry of C with Rs. 200,000
Revaluation of Assets Rs. 150,000
Goodwill Rs. 150,000
Solution
Balance Sheet
A
B
C
Rs. 200,000
400,000
200,000
Assets
Goodwill
Cash
450,000
150,000
200,000
Illustration 2
A & B were sharing profit and loss in the ratio of 5:1, they admitted C as a partner. C would bring cash of
Rs. 100,000. Fair valuation impact upwards Rs. 120,000 while Goodwill was valued to be Rs. 60,000.
Prior to the admission of C, A and B`s capital were Rs. 600,000 and Rs. 200,000.
Solution
Dr. Asset
120,000
Cr. A Capital
100,000
Cr. B Capital
20,000
Dr. Goodwill
60,000
Cr. A Capital
50,000
Cr. B Capital
10,000
Dr. Cash
Cr. C Capital
100,000
100,000
Balance Sheet
Capital A
-B
-C
750,000
230,000
100,000
Assets
Goodwill
Cash
920,000
60,000
100,000
Illustration 3
A & B were partners sharing profit and losses in the ratio of 3:5. C enters into the partnership firm with a
capital of Rs. 1,800. New profit and loss sharing ratio would be 2:3:4 prior to the admission of C capital
of A & B were Rs. 1,000 and Rs. 1,500 respectively. Fair value impact Rs. 1,200 and Goodwill Rs. 12,000.
Solution
Dr. Asset
1,200
Cr. A
450
Cr. B
750
Dr. Goodwill
12,000
Cr. A
4,500
Cr. B
7,500
Cash
Cr. C
1,800
1,800
Balance Sheet
A
B
C
5,950
9,750
1,800
Asset
Goodwill
Cash
3,700
12,000
1,800
Illustration 4 (Calculation of new ratio)

A and B are partners sharing profit and losses in the ratios of 5:4 C was admitted with 1/5th share in
profits. Compute new ratios
Solution:
Remaining 4/5
A
4/5*5/9
20/45
4/5*4/9
16/45
1/5*9/9
9/45
Illustration 5 (Calculation of new ratio)

X and Y are partners sharing profit and losses in the ratios of 2:3, Z was admitted with 1/5th share in
profits. Compute new ratios
Solution:
Remaining 4/5
X
4/5*2/5
8/25
4/5*3/5
12/25
1/5*5/5
5/25
Illustration 6 (Calculation of sacrificing ratio)

A & B share profit and losses in the ratio of 2/3rd and 1/3rd C is admitted as a partner. New ratios are
5:3:4. Calculate the sacrificing ratio.
Solution
Old ratio
New ratio
Sacrificing ratio
2/3
5/12
3/12
1/3
3/12
1/12
Sacrificing ratio is therefore 3:1

Illustration 7
X & Y are partners sharing profit in the ratio of 2:3. C enters into the partnership. The new profit sharing
ratio is 3:4:3.
Required: Calculate the sacrificing ratio.

Solution
Old ratio
New ratio
Sacrificing ratio
2/5
3/10
1/10
3/5
4/10
2/10
Illustration 8
P & Q are partners sharing profit in the ratio of 3:4. R enters into the partnership. The new profit sharing
ratio is 4:5:7.
Required: Calculate the sacrificing ratio.
Solution
Old ratio
New ratio
Sacrificing ratio
3/7
4/16
20
4/7
5/16
29
* Whenever new profit sharing ratio is not specifically given, sacrificing ratio would be equal to old ratio.
Illustration 9
A & B are partners sharing profit and losses in the ratio of 4:5. C enters into the partnership with the
profit sharing ratio 2:3:4. Fair value impact Rs. (500,000). Goodwill of the firm is Rs. 1,000,000. Before
admission share capital of A & B were Rs. 2,000,000 and Rs. 2,500,000 respectively. C brings cash with
him Rs. 10,000,000.
Required:
Make appropriate accounting entries in the books of partnership and post admission balance sheet.
Solution
Dr. A
222,222
Dr. B
277,778
Cr. Assets
Dr. Goodwill
500,000
1,000,000
Cr. A
444,444
Cr. B
555,556
Dr. cash
10,000,000
Cr. C
10,000,000
Balance Sheet
Assets (4,500-500)
Goodwill
Cash
4,000
1,000
10,000
A(2,000+222)
B
C
2,222.222
2777.773
10,000
Illustration 10
A & B are partners sharing profit and losses in the ratio of 5:3. C enters into the partnership with new
profit sharing ratio 3:2:2. Before the admission share capital of A & B was Rs. 50,000 and 30,000
respectively. Goodwill of the firm Rs. 100,000, fair value impact Rs. 40,000 upwards.
Required
Make appropriate accounting entries in the books of partnership and also prepare post admission
balance sheet assuming C brings Rs. 30,000 for his capital.
Solution
Dr. Fair value
40,000
Cr. 5A
25,000
Cr. 3B
15,000
Dr. Goodwill
100,000
Cr. 5A
62,500
Cr. 3B
37,500
Dr. Cash
Cr. C
30,000
30,000
Share Capital Schedule

Particulars
B/d
Revaluation
Goodwill
Entry
Total
A
50,000
25,000
62,500
0
137,500
B
30,000
15,000
37,500
0
82,500
C
0
0
0
30,000
30,000
Total
80,000
40,000
100,000
30,000
250,000
Balance Sheet
Assets
Goodwill
Assets
(50,30,30,40)
Total
Amount
100,000
150,000
250,000
Equity/Liabilities
Capital- A
Capital- B
Capital- C
Total
Amount
137,500
82,500
30,000
250,000
Note: if it is a requirement that goodwill and fairvalue should not appear in the balance sheet:Illustration 11
A & B share profit and losses in the ratio of 2/3rd and 1/3rd C is admitted as a partner. Goodwill is to be
recorded at 108,000. He brings Rs. 96,000 as his capital and contribution towards goodwill of the firm.
New ratios are 5:3:4.
Required: Pass journal entries
Solution
Method 1 (Create with old ratio and write off with new ratio)
Dr. Goodwill
108
Cr. A Capital
72
Cr. B Capital
36
Goodwill of the firm is valued and credited to old partners in old ratios
Dr. Cash
Cr. C Capital
96
96
Amount brought by new partner, both for capital and goodwill is credited to old new partner
Dr. A
45
Dr. B
27
Dr. C
36
Cr. Goodwill
108
Method 2 (Use sacrificing ratio among old partners i.e. Old ratio-New ratio=Sacrificing ratio)
A
2/3-5/12
1/3-3/12

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Illustration 1

Total assets: Rs. 300,000

Illustration 4 (Calculation of new ratio)

Illustration 5 (Calculation of new ratio)

Illustration 6 (Calculation of sacrificing ratio)

Sacrificing ratio is therefore 3:1

Required: Calculate the sacrificing ratio.

Share Capital Schedule

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