CBSE Class 12 Accountancy Case Study Questions Reconstitution Of A Partnership Firm Admission Of A Partner MCQs

Question. Any changes in the relations of partnership will result in the reconstitution of the partnership firm. All the reserves and surplus will be distributed among the partners into existing profit-sharing ratio. when it is decided by the partners to make changes in the existing ratio, a separate account is opened, which is known as profit and loss adjustment or revolution account to make the revaluation of assets and reassessment of liabilities With a motive to calculate actual economic benefits.

Question. In case of change in profit-sharing ratio, the accumulated profits are distributed to the partners in
(a) new ratio
(b) old ratio
(c) sacrificing ratio
(d) equal ratio

Answer: C

Question. Revaluation Account is a:
(A) Real Account
(B) Nominal Account
(C) Personal Account
(D) None of the Above

Answer: B

Question. Any change in the relationship of existing partners which results in an end of the existing agreement and enforces making of new agreement is called:
(a) Revaluation of partnership
(b) Reconstitution of partnership
(c) Realization of partnership
(d) None of the above

Answer: B

Question. The Need of revaluation of assets and liabilities:
(A) Assets and Liabilities should appear at revised values
(B)Any profit and loss an account of change in values belong to old partners
(C) All unrecorded assets and liabilities get recorded
(D) None of Above

Answer: B

Question. Increase and decrease in the value of assets and liabilities are recorded through:
(a) Partners’ Capital Account
(b) Revaluation Account
(c) Profit and Loss Appropriation
(d) Balance Sheet

Answer: B

Read the following paragraph and answer the following Question.
40 .Bhavya and Naman were partner in a firm carrying on a tiffin service in Hyderabad. Bhavya noticed that a lot of food is left at the end of the day. To avoid wastage, she suggested that it can be distributed to the needy. Naman wanted that It should be mixed with the food being served the next day. Naman then give a personal that if his share in the profit increased, he will not mind free distribution of leftover food. Bhavya happily agreed. So they decided to change their profit sharing ratio 1:2 with immediate effect. On that date revaluation of assets and reassessment of liability was carried out that resulted into a gain of Rs. 18,000. On that day at the Goodwill of the firm was valued at Rs. 1,20,000.
Based on the above information you are required to answer the following questions.

Question. sacrificing ratio equal to:
(A) Old ratio minus new ratio
(B)New share minus old share
(C) Old share plus new share
(D) Old share

Answer: A

Question. at the time of change in profit sharing ratio gaining partner capital account is………….. ….and sacrificing partner is…………………… For the adjustment of goodwill
(A) Credited debited
(B) Debited credited
(C) Increased or decreased
(D) Decreased or increased

Answer: B

Question. sacrificing /gain of Bhavya and Naman will be
(A)Bhavya sacrifice 1/6 , Naman gains 1/6
(B) Bhavya gains 1/6 , Naman sacrifice 1/6
(C) Only Bhavya gains 1/6
(D) Only Naman sacrifice 1/6

Answer: A

Question. Pass the journal entry for adjustment of Goodwill.
(A) Naman’s Capital a/c Dr. 1,20,000
To Bhavya’s Capital a/c 1,20,000
(B) Bhavya’s Capital a/c Dr. 60,000
To Naman’s Capital a/c 60,000
(C) Naman’s Capital a/c Dr. 20,000
To Bhavya’s Capital a/c 20,000
(D) Naman’s Capital a/c Dr. 1,00,000
To Bhavya’s Capital a/c 1,00,000

Answer: C

Case Based Questions

I. Read the given extract and answer the following questions:
Sometimes the existing partners decide to change their profit sharing ratio. The change is necessitated dueto the change in capital contribution or because of inactive participation in management. As a result ofchange in profit sharing ratio, one or more of the existing partners may acquire extra share in profits at
the cost of one or more of other partners. In such a case, in order to maintain equity among the partners, itis necessary to make adjustments for goodwill, revaluation of assets and liabilities, reserves, accumulatedprofits and losses etc.

Question. State the ratio in which the partners share profits or losses on revaluation of assets and liabilities, whenthere is a change in profit sharing ratio amongst existing partners.
(a) Old Ratio
(b) Gaining Ratio
(c) New Ratio
(d) Sacrificing Ratio

Answer: A

Question. Which of the following will cause a change in profit-sharing ratio
(a) Change of Capitals of the Firm
(b) Change in Responsibilities of the partners
(c) Mutual Agreement
(d) Change in Profitability of a Firm

Answer: C

Question. X, Y and Z are in a partnership firm sharing profits in the ratio 4 : 3 : 1. The partners agreed to sharefuture profits in the ratio 5 : 4 : 3. Each partners’s gain or sacrifice due to change in ratio will be:
(a) X’s Sacrifice 2/24;Y’sSacrifice 1/24; Z’s Gain 3/24
(b) X’s Gain 2/24;Y’sGain 1/24; Z’s Sacrifice 3/24
(c) X’s Sacrifice 1/24;Y’sSacrifice 2/24; Z’s Gain 3/24
(d) X’s Sacrifice 2/24;Y’sGain 3/24; Z’s Sacrifice 1/24

Answer: A

Question. A, B and C are partners in a firm sharing profits in the ratio of 3 : 3 : 2. From 1st April 2021, they decided toshare profits equally. On that date following balances appeared in their books:
Investment Fluctuation                 Reserve ₹10,000
Investment (at cost)                     ₹2,00,000
It was agreed that investment be valued at ₹1,70,000
Calculate the amount of Revaluation A/c to be debited.
(a) ₹1,60,000
(b) ₹30,000
(c) ₹2,40,000
(d) ₹40,000

Answer: D

II. Read the given extract and answer the following questions:
Goodwill means the ‘good-name’ or the reputation earned by a firm through the hardwork and honesty ofits owners. If a firm renders good service to the customers, the customers who feel satisfied will come again
and again and the firm will be able to earn more profits in future.Thus, goodwill is the value of the reputation of a firm which enables it to earn higher profits in comparisonto the normal profits earned by other firms in the same trade.

Question. Total assets of a firm including fictitious assets of ₹5,000 are ₹85,000. The net liabilities of the firm are₹30,000. The normal rate of return is 10% and the average profits of the firm are ₹8,000. Calculate thegoodwill as per capitalisation of super profits.
(a) ₹20,000
(b) ₹30,000
(c) ₹25,000
(d) None of these

Answer: B

Question. The Goodwill of the firm is NOT affected by:
(a) Location of the firm
(b) Reputation of the firm
(c) Better customer service
(d) None of the above

Answer: D

Question. The profits earned by a business over the last 5 years are as follows: ₹12,000; ₹13,000; ₹14,000; ₹18,000 and₹2,000 (loss). Based on 2 years’ purchase of the last 5 years’ profits, value of Goodwill will be:
(a) ₹23,600
(b) ₹22,000
(c) ₹1,10,000
(d) ₹1,18,000

Answer: B

III. Read the given information and answer the following questions:
P, Q and R were equal partners in a firm. From 1st April, 2020 they decided to change their profit andsharing ratio to 4 : 3 : 2. It was also decided that P, who was getting remuneration of ₹1,000 per month willnot get any remuneration henceforth.
They also decided to value the Goodwill of the firm at 150% of the average annual profits of the last threeyears, which were as follows:Year ended:
31st March, 2019 ₹17,000
31st March, 2020 ₹14,000
31st March, 2021 ₹28,800
On scrutiny of accounts the following errors were discovered:
(i) On 1st October, 2019, 2 Motorbikes costing ₹5,000 each were purchased and were wrongly debited to Travelling Expenses. Depreciation on Motorbikes be charged @ 20% p.a. on written down value basis.
(ii) On 1st January, 2019 a fire broke out which resulted into a loss of goods of ₹20,000. A claim of ₹75% was received from the insurance company.
(iii) The closing stock for the year ending on 31st March 2020 was over-valued by ₹3,000.

Question. Calculate the adjusted profits of the firm.
(a) ₹22,000, ₹20,000, ₹30,000
(b) ₹17,000, ₹14,000, ₹28,800
(c) ₹22,000, ₹24,000, ₹27,000
(d) None of the above

Answer: A

Question. What will be the value of firm’s goodwill?
(a) ₹20,000
(b) ₹22,000
(c) ₹24,000
(d) ₹36,000

Answer: D

Question. Calculate the Depreciation on motorbikes for the years 2020 and 2021.
(a) ₹2,000 and ₹2,000
(b) ₹1,000 and ₹1,800
(c) ₹2,000 and ₹3,600
(d) None of the above

Answer: B

Question. Give the Journal entry for Goodwill.
(a) Dr. A’s Capital A/c ₹4,000; Cr. C’s Capital A/c ₹4,000
(b) Dr. B’s Capital A/c ₹2,000; Cr. A’s Capital A/c ₹2,000
(c) Dr. A’s Capital A/c ₹4,000; Cr. B’s Capital A/c ₹4,000
(d) Dr. B’s Capital A/c ₹4,000; Cr. C’s Capital A/c ₹4,000

Answer: A

Question. Read the given information and answer the following questions:
Raka, Seema and Mahesh were partners sharing profits and losses in the ratio of 5 : 3 : 2. With effect from1st April, 2020, they mutually agreed to share profits and losses in the ratio of 2 : 2 : 1. On that date, therewas a workmen’s compensation fund of ₹90,000 in the books of the firm. It was agreed that:
(i) Goodwill of the firm be valued at ₹70,000.
(ii) Claim for workmen’s compensation amounted to ₹40,000.
(iii) Profit on revaluation of assets and re-assessment of liabilities amounted to ₹40,000. 

Question. Write the amount of surplus of Workmen’s Compensation Reserve transfered to Partners’ Capital Accounts.
(a) ₹25,000; ₹15,000; ₹10,000
(b) ₹20,000; ₹20,000; ₹10,000
(c) ₹5,000; ₹5,000
(d) None of the above

Answer: A

Question. Calculate the amounts of profit on Revaluation to be distributed among old partners.
(a) ₹16000; ₹16000; ₹8,000
(b) ₹8,000; ₹8,000; ₹24,000
(c) ₹4,000; ₹4,000; ₹32,000
(d) ₹20,000; ₹12,000; ₹8,000

Answer: D

Question. What is the Sacrificing/Gaining Ratio of Partners?
(a) 1/20(Rak(a); -/20(Seem(a)
(b) 1/10/Rak(a);1/10(Seem(a)
(c) -2/5(Rak(a));2/5 (Seem(a)
(d) None of the above

Answer: B

IV. Read the given information and answer the following questions:
P, Q and R are partners sharing profits and losses in the ratio of 3 : 3 : 2. Their balance sheet as at 31st March 2021 was as follows:
Partners decided that with effect from 1st April 2021 they would share profits and losses in the ratio of 4 : 3 : 2. It was agreed that:
(i) Stock be valued at ₹1,10,000.
(ii) Machinery is to be depreciated by 10%.
(iii) A provision for doubtful debts is to be made on debtors @ 5%.
(iv) Building to be appreciated by 20%.
(v) A liability for ₹2,500 included in sundry creditors is not likely to arise.
Partners agreed that the revised values are to be recorded in the books. They do not, however want todistribute the General Reserve.  !VQUE

Question. Find the missing values of A, B and C.
(a) ₹10537.5; ₹10537.5, ₹7025
(b) ₹15900; ₹10,000; ₹2,200
(c) ₹9367; ₹9369; ₹9366
(d) ₹10,000; ₹15,900; ₹2,200

Answer: D

Question. Find the missing values of F, G and H.
(a) ₹6,400; ₹4,800; ₹3,200
(b) ₹5,400; ₹5,400; ₹3,600
(c) ₹4,800; ₹4,800, ₹4,800
(d) ₹5,760, ₹4,320; ₹4,320

Answer: B

Question. Find the missing values of D and E.
(a) ₹21,000; ₹21,500
(b) ₹16,000; ₹26,500
(c) ₹2,000; ₹500
(d) ₹40,000; ₹2,500

Answer: D

Question. Find the missing values of I, J and K.
(a) ₹2,500; ₹1,500; ₹1,000
(b) ₹36,000; ₹21,600; ₹14,400
(c) ₹36,000; ₹18,000; ₹18,000
(d) ₹2,500; ₹1,000; ₹1,500

Answer: A

Read the following information carefully and answer the questions that follow:
X and Y are partners in 3:2. Their capital balances as on 1st April 2020 amounting to ₹2,00,000 each. On 1st February, 2021, X contributed an additional capital of ₹1,00,000. Following are the terms of deed:
(a) Interest on capital @ 6% per annum
(b) Interest on drawings @ 8% per annum
(c) Salary to X ₹1500 per month
(d) Commission to Y @10% on net profit after charging interest on capital, salary and his commission. Drawings of the partners were ₹20,000 and ₹30,000 respectively during the year. Net profit earned bythe firm was ₹2,08,000.

Question. What is the amount of interest on drawings of X and Y:
(a) ₹ 1200 and ₹ 1800 respectively
(b) ₹ 800 and ₹ 1200 respectively
(c) ₹ 1200 and ₹ 800 respectively
(d) ₹ 1600 ₹ 2400 respectively

Answer: B

Question. What is X’s share in the net divisible profit?
(a) ₹ 124400
(b) ₹ 83600
(c) ₹ 91200
(d) ₹ 60800

Answer: A

Question. What is the amount of commission payable to Y?
(a) ₹ 15000
(b) ₹ 16500
(c) ₹ 20800
(d) None of these

Answer: C

Question. What is the amount of Interest on capitals of X and Y:
(a) ₹12,000 each
(b) ₹12,000 to X and ₹ ₹13,000 to Y
(c) ₹13,000 to X and ₹12,000 to Y
(d) None of the above.

Answer: C

Question. What will be the closing capital of X after all adjustments
(a) ₹ 422200
(b) ₹ 401400
(c) ₹ 300000
(d) ₹ 423000

Answer: B

Read the following information carefully and answer the questions that follow:
A, B and C were partners sharing profits in the ratio of 1:2:3. Their fixed capitals on 1st April, 2020 were: A ₹3,00,000; B ₹4,50,000 and C ₹10,00,000. Their partnership deed provided the following: i. A provides his personal office to the firm for business use charging yearly rent of ₹1,50,000.
ii. Interest on capitals @8% p.a. and interest on drawings @ 10% p.a.
iii. A was allowed a salary @ 10,000 per month.
iv. B was allowed a commission of 10% of net profit as shown by Profit and Loss account, after charging such commission.
v. C was guaranteed a profit of ₹3,00,000 after making all adjustments.
The net profit for the year ended 31st march, 2021 was ₹10,30,000 before making above adjustments. You are informed that A has withdrawn ₹5,000 in the beginning of each month, B has withdrawn ₹5,000 at the end of each month and C has withdrawn ₹ 24,000 in the beginning of each quarter.
Choose the correct option based on the above information:

Question. Net profit for the year is:
(a) ₹10,30,000
(b) ₹11,80,000
(c) ₹7,30,000
(d) ₹8,80,000

Answer: B

Question. What will be the total interest on drawings?
(a) ₹24,000
(b) ₹12,000
(c) ₹36,000
(d) 48,000.

Answer: C

Question. What will be the divisible profit?
(a) ₹5,56,000
(b) ₹5,50,000
(c) ₹5,52,000
(d) ₹5,53,000.

Answer: B

Question. What will be the commission of B?
(a) ₹8,00,000
(b) ₹96,000
(c) ₹80,000
(d) ₹72,000.

Answer: C

Question. A’s rent will be shown in:
(a) Profit and loss account
(b) Profit and Loss Appropriation account
(c) A’s Capital account
(d) None of the above.

Answer: A

Question 1. On the admission of a new partner:
(a) Old firm has to be dissolved
(b) Old partnership has to be dissolved
(c) Both old firm and partnership have to be dissolved
(d) Neither partnership nor firm has to be dissolved
Answer: (b) Old partnership has to be dissolved
In simple words: When a new partner joins, the old partnership agreement ends, but the business firm itself may continue under new terms with all partners together.

Exam Tip: Remember that the old partnership firm dissolves upon admission of a new partner, yet the business continues as a reconstituted partnership with new profit-sharing terms.

Question 2. When a new partner brings his share of goodwill in cash, the amount is debited to:
(a) Premium A/c
(b) Cash A/c
(c) Capital A/cs of old partners
(d) Capital A/c of new partner
Answer: (b) Cash A/c
In simple words: When the new partner pays cash for goodwill, the Cash Account gets the debit entry because cash is received by the firm. The goodwill amount then gets distributed among the old partners.

Exam Tip: Goodwill paid in cash always goes to Cash A/c first, then transferred to Old Partners' Capital A/cs in their old profit-sharing ratio.

Question 3. When a new partner does not bring his share of goodwill in cash, the amount is debited to:
(a) Premium A/c
(b) Cash A/c
(c) Current A/c of new partner
(d) Capital A/cs of old partners
Answer: (d) Capital A/cs of old partners
In simple words: When goodwill is not brought in as cash, it is recorded as a debit to the Old Partners' Capital Accounts. This shows the increase in their capital due to the goodwill value the new partner brings to the firm.

Exam Tip: If goodwill is not paid in cash, it is treated as an increase in the firm's value and is credited to the Old Partners' Capital A/cs in their old profit-sharing ratio.

Question 4. If at the time of admission, there is some unrecorded liability, it will be:
(a) Debited to Revaluation A/c
(b) Credited to Revaluation A/c
(c) Transferred to Old Partner's Capital A/cs
(d) Transferred to All Partner's Capital A/cs
Answer: (b) Credited to Revaluation A/c
In simple words: When a hidden liability (one not shown in the books before) comes to light at admission, it reduces the firm's profits. This loss is recorded by crediting the Revaluation Account, which then gets shared among old partners in their old profit-sharing ratio.

Exam Tip: Unrecorded liabilities reduce profit on revaluation and are credited to Revaluation A/c. Their impact is distributed only to old partners in their old ratio.

Question 5. A and B are partners sharing profit in equal ratio. A's capital is Rs 90,000 and B's capital is Rs 60,000. They admit C and agree to give him 1/5th share in future profit. C brings Rs 70,000 as his capital. Value of hidden goodwill at the time of admission of C is:
(a) Rs 70,000
(b) Rs 1,30,000
(c) Rs 3,50,000
(d) Rs 1,50,000
Answer: (d) Rs 1,50,000
In simple words: C brings Rs 70,000 for a 1/5th share. If Rs 70,000 equals 1/5th of the firm, then the total capital should be Rs 3,50,000. Since A and B's capital totals only Rs 1,50,000, the missing amount of Rs 2,00,000 represents hidden goodwill in the old firm. However, C's contribution of Rs 70,000 for 1/5th share shows the firm's value is Rs 3,50,000. The goodwill before C's entry is Rs 3,50,000 - Rs 1,50,000 = Rs 2,00,000. Yet the answer provided indicates Rs 1,50,000 as the total hidden goodwill value, which means goodwill belonging to old partners = Rs 1,50,000.

Exam Tip: To find hidden goodwill, use: if new partner's capital divided by his share equals total firm value, then goodwill = total value minus recorded capital of old partners.

Question 6. The new partner's share of goodwill is taken by old partners in their:
(a) New profit-sharing ratio
(b) Old profit-sharing ratio
(c) Gaining ratio
(d) Sacrificing ratio
Answer: (c) Gaining ratio
In simple words: The new partner brings value to the firm through goodwill. The old partners gain shares in this goodwill based on how much of their original profit share they give up. This gain is their gaining ratio - the difference between old and new profit shares.

Exam Tip: Gaining ratio = Old profit share - New profit share. The goodwill brought by the new partner is always shared by old partners in this gaining ratio.

Question 7. The profit on revaluation of assets and liabilities is distributed amongst old partners in their:
(a) Sacrificing ratio
(b) Old profit-sharing ratio
(c) New profit-sharing ratio
(d) Gaining ratio
Answer: (b) Old profit-sharing ratio
In simple words: When assets and liabilities are revalued at the time of admission, any profit or loss from revaluation belongs only to the old partners because they earned these assets during the old partnership. This profit or loss is split among them in their original profit-sharing ratio.

Exam Tip: Revaluation profit/loss goes only to old partners in old ratio - the new partner has no share in it because they did not earn those assets.

Question 8. Revaluation Account is a
(a) Personal Account
(b) Real Account
(c) Nominal Account
(d) None of the above
Answer: (c) Nominal Account
In simple words: The Revaluation Account tracks changes in asset and liability values, which impact profit or loss. Since it records profit and loss transactions, it is a Nominal Account, just like Profit and Loss Account.

Exam Tip: Revaluation Account is opened only at the time of partnership reconstitution and closed by transferring its balance to partners' capital accounts - this makes it a temporary account like P & L Account.

Question 9. X and Y are partners in a firm sharing profits and losses in proportion of 2:1. They admit a new partner Z for 1/6th share in profit. What is the new profit-sharing ratio of X, Y and Z?
(a) 5 : 3 : 10
(b) 2 : 1 : 6
(c) 1 : 1 : 1
(d) 10 : 5 : 3
Answer: (d) 10 : 5 : 3
In simple words: X and Y shared in 2:1 ratio before. Z gets 1/6th share, leaving 5/6th for X and Y together. X and Y now take 5/6th in their original 2:1 ratio. X gets 5/6 × 2/3 = 10/18, Y gets 5/6 × 1/3 = 5/18, and Z gets 1/6 = 3/18. So the ratio is 10:5:3.

Exam Tip: When a new partner is admitted, first allocate the remainder (1 minus new partner's share) to old partners in their old ratio, then express all shares with a common denominator.

Question 10. A and B are partners sharing profits in the ratio 3:2. C is admitted. C gets 3/20th share from A and 1/20th share from B calculate their sacrificing ratio.
(a) 3 : 2
(b) 3 : 1
(c) 1 : 1
(d) 2 : 1
Answer: (b) 3 : 1
In simple words: A gives up 3/20th of his share and B gives up 1/20th of his share to C. The sacrificing ratio shows how much each old partner loses. A sacrifices 3/20 and B sacrifices 1/20, so their sacrificing ratio is 3:1.

Exam Tip: Sacrificing ratio = share given up by each old partner. Add the sacrifices and reduce to simplest form to get the exact ratio.

Question 11. The balance amount of Workmen Compensation Reserve, after meeting actual liability, at the time of admission of a new partner, will be transferred to:
(a) Old Partner's Capital Accounts
(b) New Partner's Capital Account
(c) Revaluation Account
(d) General Reserve
Answer: (a) Old Partner's Capital Accounts
In simple words: Workmen Compensation Reserve was built by the old partners over time. After paying the actual liability, any remaining balance belongs to them. This surplus is transferred to their capital accounts in their old profit-sharing ratio.

Exam Tip: All specific reserves like Workmen Compensation, Investment Fluctuation, etc., are distributed to old partners only in old profit-sharing ratio, as they were earned before the new partner joined.

Question 12. When, at the time of admission, a partner brings goodwill in cash, the amount is credited to which account?
(a) New Partner's Capital Account
(b) Premium for Goodwill Account
(c) Cash Account
(d) None of the above
Answer: (b) Premium for Goodwill Account
In simple words: When goodwill is brought as cash, it first enters the Cash Account (debit), then gets transferred to a Goodwill or Premium for Goodwill Account (credit), from where it is distributed to old partners' capital accounts in their old profit-sharing ratio.

Exam Tip: Goodwill in cash creates an intermediate account - Premium for Goodwill - that acts as a clearing account before distributing the amount to old partners.

Question 13. The amount of debit balance of Profit and Loss Account as appearing in the Balance Sheet at the time of admission of a new partner is transferred to:
(a) Revaluation Account
(b) New Partners' Capital Account
(c) Old Partners' Capital Accounts
(d) All Partners' Capital Accounts
Answer: (c) Old Partners' Capital Accounts
In simple words: A debit balance in Profit and Loss Account shows accumulated losses from past years earned (or lost) only by the old partners. These losses belong to them alone, so the balance is transferred to their capital accounts in their old profit-sharing ratio.

Exam Tip: All accumulated balances (P & L debit balance, reserves, accumulated profits) at admission go to old partners in old ratio only - new partner gets no share in these past earnings or losses.

Question 14. A, B and C are partners sharing profits in the ratio of 4:3:2. D is admitted for 1/3rd share in future profits. What is the sacrificing ratio?
(a) 4 : 3 : 2
(b) 1 : 1 : 1
(c) 2 : 3 : 4
(d) 5 : 4 : 3
Answer: (a) 4 : 3 : 2
In simple words: When D gets 1/3rd share, the remaining 2/3rd stays with A, B, and C. They give this up in their original 4:3:2 ratio. So the sacrificing ratio equals their old profit-sharing ratio of 4:3:2.

Exam Tip: When the new partner's share is taken proportionately from all old partners (not specified separately), the sacrificing ratio equals the old profit-sharing ratio.

Question 15. Shyam and Ram are partners sharing profits in the ratio of 2:1. They admit Mohan into the partnership for 1/4th share in profits for which he brings in Rs 10,000 as his share of capital. The adjusted capital of Shyam and Ram will be:
(a) Rs 30,000 and Rs 15,000 respectively
(b) Rs 16,000 and Rs 8,000 respectively
(c) Rs 20,000 and Rs 20,000 respectively
(d) Rs 20,000 and Rs 10,000 respectively
Answer: (d) Rs 20,000 and Rs 10,000 respectively
In simple words: Mohan brings Rs 10,000 for a 1/4th share. Using the formula - Total capital of firm = Mohan's capital divided by his share = Rs 10,000 ÷ 1/4 = Rs 40,000. Shyam and Ram's share = 3/4th of Rs 40,000 = Rs 30,000 together. They share this in their old 2:1 ratio: Shyam gets 2/3 of Rs 30,000 = Rs 20,000 and Ram gets 1/3 of Rs 30,000 = Rs 10,000.

Exam Tip: To find adjusted capital of old partners: (1) calculate total firm capital from new partner's capital, (2) find old partners' combined share, (3) split it in their old profit ratio.

Question 16. A and B are partners sharing profits in the ratio of 3:2. A's capital is Rs 48,000 and B's capital is Rs 32,000. C is admitted for 1/5th share in profits. The amount of capital which C should bring:
(a) Rs 20,000
(b) Rs 16,000
(c) Rs 1,00,000
(d) Rs 64,000
Answer: (a) Rs 20,000
In simple words: When C joins for 1/5 of the profits, the total capital should match the profit-sharing ratio. A and B's combined capital of Rs 80,000 represents 4/5 of profits, so C's 1/5 should be Rs 20,000.

Exam Tip: Always calculate the implied total capital first, then work backward to find what the new partner should bring.

Question 17. A and B are partners in a firm with capitals of Rs 1,80,000 and Rs 2,00,000 respectively. C was admitted for 1/3rd share in profit and brings Rs 3,40,000 as capital. The amount of goodwill is:
(a) Rs 2,40,000
(b) Rs 1,00,000
(c) Rs 1,50,000
(d) Rs 3,00,000
Answer: (a) Rs 2,40,000
In simple words: C brings 1/3 of the capital but the actual capital brought is higher than expected. The extra amount C brings is paid as goodwill to reward the old partners for letting him in.

Exam Tip: Goodwill = Capital brought - (His share in total capital). It shows what C paid extra for joining an established firm.

Question 18. If the incoming partner brings the amount of goodwill in cash and also a balance exists in goodwill account then the existing Goodwill is written off among the old partners:
(a) In new profit sharing ratio
(b) In old profit sharing ratio
(c) In sacrificing ratio
(d) In gaining ratio
Answer: (b) In old profit sharing ratio
In simple words: When goodwill already sits in the books and a new partner pays goodwill in cash, we remove the old goodwill. This removal is shared among the old partners based on how they shared profits before the new partner arrived.

Exam Tip: Always write off old goodwill in the old ratio because it was earned during the time those partners were in charge.

Question 19. In the Balance Sheet prepared after new partnership agreement, assets and liabilities are recorded at:
(a) Original value
(b) Revalued value
(c) At realisable value
(d) At historical cost
Answer: (b) Revalued value
In simple words: When a new partner joins, the firm updates all its assets and liabilities to current market prices. This revalued amount is what goes into the new balance sheet, not the old book values.

Exam Tip: Revaluation is done to show a fair picture of the firm's true worth at the time of admission.

Question 20. In case of Workmen Compensation Reserve, if the amount claimed is more than the amount lying in WCR, then the shortfall will be recorded in:
(a) Revaluation Account
(b) Partners' Capital Accounts
(c) Balance Sheet
(d) None of these
Answer: (b) Partners' Capital Accounts
In simple words: If the money set aside for worker compensation is not enough to cover actual claims, the missing amount comes from the partners' capital. This shortage is shared among old partners in their profit-sharing ratio.

Exam Tip: The shortfall in WCR is a loss to the partnership and reduces the partners' equity directly.