Reserve and Accumulated Profits/Losses and Prepar
umulated Profits/Losses and Preparation of Revaluation Account
and 8 are partners sharing profits and losses in the ratio of 3/4 : 1/4. They agree to
business. C is to get 14th share of the future profits. At
s in the ratio of 3/4:14They agree to admit C into the
Reserve of 4000 appearing in the Balance sheet of A
yer share of the future profits. At the time of Cis admission, there was a General
appearing in the Balance Sheet of A and B Revaluation of assets and Habilities resulted
in gain of 2000 Pass necessary Joumal entries on s admission.
41. At the time of admission of a new marter the
he was and liabilities were revalued. The following
Answers
Answer:
Partners of a continuing business may, by common consent, decide to admit a new partner foradditional capital, technical skill or managerial efficiency. At the time of such admission, theusual adjustments required are : (1) Adjustment regarding Profit Sharing Ratio; (2) Adjust-ment regarding Valuation of Assets and Liabilities; (3) Adjustment regarding Goodwill; (4)Adjustments regarding accumulated Profits or Losses and (5) Adjustment regarding CapitalContribution of New partner and Capitals of existing partners.
1.
Adjustment regarding Profit Sharing Ratio :
The new partner becomes entitled to a shareof future profits which is sacrificed by the existing (old) partners in his favour. The sacri-fice may be made by one or all of the existing partners.
The new profit sharing ratio hasto be found out.
It should be noted that :(a)The new profit sharing ratio may be agreed upon by the partners. [It may be given and weneed not calculate it :(b)The mutual profit sharing ratio among the existing partners may remain unaltered aftergiving away the new partner’s share.
Example
:X and Y were partners sharing profit/losses as 3 : 2. They admit as a new partnergiving him 1/5th share of future profits. What should be the new profit sharingratio?
Solution
:Z’s share = 1/5 Balance = 1 – 1/5 = 4/5X’s share = 4/5 x 3/5 = 12/25; Y’s share = 4/5x2/5 = 8/25; Z’s share = 1/5 = 1/25.The new profit sharing ratio = 12 : 8 : 5.(c)The mutual profit sharing ratio among existing partners may be changed by agreement.
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