GOVERNMENT OF ANDHRA PRADESH
DEPARTMENT OF TECHNICAL EDUCATION
Name of the participant : N. Sairam
Designation : Head of section
Branch : DCCP
Institute : GPW, kakinada
Year/Sem : IV sem
Subject : Accountancy - III
Subject code : CCP – 402
Major topic : Partnership Accounts
Sub topic : Admission of partner
Duration : 50 minutes
Teaching aids : PPT, Animations
CCP402.46 1
Objectives
On completion of this period, you would be
able to understand:
Adjustment of capitals in proportion to their share of
capital
Preparation of necessary ledger accounts and new
balance sheet
CCP402.46 2
Recap
So far we have learnt
Accounts relating to partnerships on admission of a
partner
New profit sharing ratio
Treatment of goodwill
Revaluation of assets & liability
Distribution of General Reserves etc
CCP402.46 3
Adjustment of capitals according to
profit sharing ratio
When a new partner is admitted into business
all the partners may agree to maintain their capitals in
future
in proportion to their profit sharing ratio.
CCP402.46 4
Adjustment of capitals
In such a case:
1. The incoming partner may have to bring
proportionate amount of capital
Or
2. The existing partners may have to adjust
their capitals in proportion to the share of
capital of new partner
CCP402.46 5
Adjustment of capitals
If the new partner is required to bring a fixed amount of
capital for a particular share,
the capital accounts of the existing partners have to be
adjusted as per the capital of the new partner
CCP402.46 6
Adjustment of capitals
When capital accounts are required to be maintained as
per profit sharing ratio,
it is to be understood that they have to maintain their
capitals fixed in future
CCP402.46 7
Adjustment of capitals
When the capitals of the existing partners are decided in
accordance with their profit sharing ratio
the surplus or deficit in their capitals accounts may be
adjusted in cash
or may be transferred to their current accounts as per
the agreement
CCP402.46 8
Illustration
The following is the balance sheet of A and B
sharing profits in proportion of 4:3
Creditors 18,900 Buildings 50,400
Bills payable 6,300 Furniture 7,350
Reserves 7,000 Stock 29,400
Capitals Debtors 26,460
A 48,300 Bank 8,890
B 42,000 90,300
1,22,500 1,22,500
CCP402.46 9
Illustration
They agree to admit C into partnership, giving him
1/8th share with the following terms:
2. C to bring capital of 20,000 and 7,000 goodwill
3. Furniture to be reduced by Rs.920 and stock be
depreciated by 10%
4. Outstanding repairs of Rs.1,320 to be provided for
5. Buildings be appreciated to Rs.65,100
6. Capitals of A and B to be adjusted on the basis of
C’s capital by opening current accounts.
CCP402.46 10
Solution
Journal Entries
1. Bank a/c Dr 27,000
To C’s capital a/c 20,000
To Goodwill a/c 7,000
(Being the capital and goodwill brought in)
CCP402.46 11
Journal entries
2. Goodwill a/c Dr 7,000
To A’s capital a/c 4,000
To B’s capital a/c 3,000
(Being the goodwill distributed)
CCP402.46 12
Journal entries
3. Revaluation a/c Dr 5,180
To Furniture a/c 920
To Stock a/c 2,940
To Provision for repairs 1,320
(Being the revaluation made)
CCP402.46 13
Journal entries
4. Buildings a/c Dr 14,700
To Revaluation a/c 14,700
(Being the asset appreciated)
CCP402.46 14
Journal entries
5. Revaluation a/c Dr 9,520
To A’s capital a/c 5,440
To B’s capital a/c 4,080
(Being the profit on revaluation
transferred to capital a/cs)
CCP402.46 15
Journal entries
6. Reserve a/c Dr 7,000
To A’s capital a/c 4,000
To B’s capital a/c 3,000
(Being the reserve transferred
to capital a/cs of old partners)
CCP402.46 16
Journal entries
7. A’s current a/c Dr 18,260
B’s current a/c Dr 7,920
To A’s capital a/c 18,260
To B’s capital a/c 7,920
(Being the deficit in capital accounts
is transferred to current accounts)
CCP402.46 17
Ledger accounts revaluation a/c
To stock a/c 2,940 By buildings a/c 14,700
To Furniture a/c 920
To Repairs 1,320
To A’s a/c 5,440
To B’s a/c 4,080
14,700 14,700
CCP402.46 18
Bank a/c
To Balance b/d 8,890
To C’s capital a/c 20,000
To goodwill a/c 7,000
By Balance c/d 35,890
35,890 35,890
CCP402.46 19
Calculation of profit sharing ratio
Total share of profit =1
C’s share = 1/8th
Remaining share = 1 – 1/8 = 7/8
A’s share = 7/8 x 4/7 = 4/8
B’s share = 7/8 x 3/7 = 3/8
C’s share = 1/8
Hence, A : B: C = 4/8 : 3/8 : 1/8
= 4 : 3 : 1
CCP402.46 20
Calculation of capitals
C’s capital = 20,000
C’s share of profit = 1/8
So, capital of the firm= 20,000 x 8=1,60,000
A’s capital should be 1,60,000 x 4/8
= 80,000
B’s capital should be 1,60,000 x 3/8
= 60,000
CCP402.46 21
A’s capital a/c
By Balance b/d 48,300
By goodwill a/c 4,000
By Revaluation a/c 5,440
By Reserve a/c 4,000
To Balance c/d 80,000 By Current a/c 18,260
80,000 80,000
CCP402.46 22
B’s capital a/c
By Balance b/d 42,000
By Goodwill a/c 3,000
By Revaluation a/c 4,080
By Reserve a/c 3,000
To Balance c/d 60,000 By Current a/c 7,920
60,000 60,000
CCP402.46 23
C’s capital a/c
By bank a/c 20,000
To Balance c/d 20,000
20,000 20,000
CCP402.46 24
A’s CURRENT A/C
To A’s capital a/c 18,260
By balance c/d 18,260
18,260 18,260
CCP402.46 25
B’s CURRENT A/C
To B’s capital a/c 7,920
By balance c/d 7,920
7,920 7,920
CCP402.46 26
NEW BALANCE SHEET
Creditors 18,900 Buildings 65,100
Bills payable 6,300 Furniture 7,350-920 6,430
Provision for Stock 29,400-2,940 26,460
repairs 1,320 Debtors 26,460
Capital a/cs Bank 35,890
A 80,000 Current a/cs
B 60,000 A 18,260
C 20,000 1,60,000 B 7,920 26,180
1,86,520 1,86,520
CCP402.46 27
New balance sheet
Creditors 18,900 Buildings 65,100
Bills payable 6,300 Furniture 7,350-920 6,430
Provision for repairs 1,320 Stock 29,400-2,940 26,460
Capitals a/c’s Debtors 26,460
A 80,000 Bank 35,890
B 60,000 Current a/c’s
C 20,000 1,60,000 A 18,260
B 7,920 26,180
1,86,520 1,86,520
CCP402.46 28
Review questions
1. What are the points to be considered before the
admission of a new partner?
2. How do you calculate the proportionate capitals?
CCP402.46 29
Quiz
For 1/4th share of a new partner brings 4,25,000 when
it is agreed to adjust capitals as per sharing ratio, what
is the total capital of the firm
a) 75,000
b) 1,00,000
c) 80,000
d) 1,25,000
CCP402.46 30
