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