Reconstitution of a Partnership Firm – Admission of a PartnerClass 12 Accountancy Part 1 Case Study Questions
11 Questions
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Case 1 of 11
Case Study7 marks
Admission with Simple Goodwill Adjustment
Sunil and Dalip are partners in a firm, sharing profits and losses in the ratio of 5:3. They decide to admit Sachin into the firm for a 1/5th share of profits. For this, Sachin brings in Rs. 20,000 as his capital and Rs. 4,000 as his share of premium for goodwill by cheque. The agreement is that the goodwill brought in by Sachin will be retained in the business. It is assumed that the new partner acquired his share from the old partners in their old profit sharing ratio, as nothing is specified to the contrary. The firm needs to record the necessary transactions for Sachin's admission.
Questions on this case
1(1 mark)MCQ
In what ratio will Sunil and Dalip sacrifice their share of profit in favour of Sachin?
2(1 mark)MCQ
What is the new profit sharing ratio of Sunil, Dalip, and Sachin?
3(1 mark)
What is the journal entry for the treatment of the goodwill premium brought in by Sachin?
4(2 marks)
If Sunil and Dalip decide to withdraw 50% of the goodwill amount, what additional journal entry would be passed?
5(2 marks)
Why is the premium for goodwill paid by a new partner credited to the old partners' capital accounts and not treated as a business income?
Case Study7 marks
Revaluation on Admission
A and B are partners sharing profits in the ratio of 3:2. They decide to admit C into the partnership on April 1, 2017, for a 1/6th share. On that date, the Balance Sheet showed Sundry Debtors at Rs. 12,000, Stock at Rs. 15,000, and Plant and Machinery at Rs. 30,000. C is to bring in Rs. 15,000 as capital and Rs. 5,000 as premium for goodwill. The partners agree to revalue certain assets and liabilities. The value of stock is to be reduced by 10%, while plant and machinery is to be appreciated by 10%. Furthermore, a provision for doubtful debts is to be created on sundry debtors at 5%. An investment worth Rs. 1,000, not previously mentioned in the balance sheet, is to be taken into account.
Questions on this case
1(1 mark)MCQ
An unrecorded asset, when brought into the books upon admission of a partner, is:
2(1 mark)MCQ
What is the total loss recorded on the debit side of the Revaluation Account?
3(2 marks)
Calculate the net profit or loss on revaluation.
4(1 mark)
How will the revaluation profit be distributed between A and B? State the amounts.
5(2 marks)
Explain why the Revaluation Account is prepared and why its balance is transferred only to the old partners' capital accounts.
Case Study7 marks
Goodwill Treatment: Not Brought in Cash
Ahuja and Barua are partners sharing profits and losses in the ratio of 3:2. They decide to admit Chaudhary into the partnership for a 1/5th share of profits, which he acquires equally from Ahuja and Barua. On the date of admission, the firm's goodwill is valued at Rs. 30,000. Chaudhary brings in Rs. 16,000 as his capital but informs the existing partners that he is not in a position to bring any amount for his share of goodwill in cash. The partners decide to make the necessary adjustments for goodwill in their books without raising a goodwill account.
Questions on this case
1(1 mark)MCQ
What is Chaudhary's share of goodwill?
2(1 mark)MCQ
When a new partner does not bring his share of goodwill in cash, which account is debited for this amount?
3(1 mark)
What is the sacrificing ratio of Ahuja and Barua?
4(2 marks)
Pass the necessary journal entry for the adjustment of goodwill.
5(2 marks)
Explain the rationale for debiting the new partner's Current Account instead of their Capital Account for the unpaid goodwill premium.