CHAPTER-2 : ADMISSION OF A PARTNER

PART - A One Mark Questions:

I] Multiple Choice Questions:
1] At the time of admission of a new partner, general reserve appearing in the old
balance sheet is transferred to:
a] All Partners Capital Account b] New Partner’s Capital Account
c] Old Partners Capital Account d] Not to be transferred
2] A, B and C are partners in a firm. If D is admitted as a new partner:
a] Old firm is dissolved b] Old firm and old partnership are dissolved
c] Old partnership is reconstituted d] Old partnership dissolved
3] On the admission of a new partner, increase in the value of asset is credited to:
a] Profit and Loss Adjustment (Revaluation) Account b] Asset account
c] Old Partners Capital account d] New partner’s capital account
4] At the time of admission of a partner, undistributed profits appeared in the balance
sheet of the old firm is transferred to the capital accounts of:
a] Old partners in old profit sharing ratio b] Old partners in new profit sharing ratio
c] All the partners in new profit sharing ratio d] All partners capital account equally
5] A and B are partners with capitals of ₹45,000 each. C is admitted for 1/3rd share and
he brings in ₹60,000 as his capital. Hidden goodwill is,
a] ₹60,000 b] ₹30,000 c] ₹90,000 d] ₹45,000
6] Which of the following are treated as reconstitution of a Partnership Firm?
a] Admission of a partner b] Change in profit sharing ratio
c] Retirement of a partner d] All of the above
7] Profit or Loss on revaluation is shared among the partners in the:
a] Old profit sharing ratio b] New profit sharing ratio c] Capital ratio d] Equal ratio
8] Assets and Liabilities are recorded in Balance Sheet after admission of a partner at:
a] Original value b] Revalued value
c] Realisable value d] Book value as appeared in old balance sheet
9] Old Profit Sharing Ratio - New Profit Sharing Ratio is = _____________
a] Sacrificing ratio b] Gaining ratio c] Both the above d] None of the above
10] In the absence of an agreement to the contrary, it is implied that old partners will
contribute to new partner’s share of profit in the ratio of:
a] Capital b] Old profit sharing ratio c] Sacrificing ratio d] Equally
11] The balance of reserves and other accumulated profits at the time of admission of a
new partner are transferred to:
a] All partners in the new ratio b] Old partners in the new ratio
c] Old partners in the old ratio d] Old partners in the sacrificing ratio
12] Revaluation Account is debited for the:
a] increase in provision for doubtful debts b] increase in the value of building
c] decrease in the amount of creditors d] transfer of loss on revaluation
13] A and B are partners sharing profits in the ratio of 3:1. C is admitted into
partnership for 1/4th share. The sacrificing ratio of A and B will be:
a] Equal b] 3:1 c] 2:1 d] 3:2
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14] On the admission of new partner, increase in the value of assets is debited to:
a] Profit and Loss adjustment account b] Assets account
c] Old partners capital account d] New partner’s capital account
15] A and B are partners sharing profits in the ratio of 3:1. They admit C for ¼th share
in the future profits. The new profit sharing ratio will be:
a] A 9/16 , B 3/16 , C 4/16 b] A 8/16 , B 4/16 , C 4/16
c] A 10/16 , B 2/16 , C 4/16 d] A 8/16 , B 9/16 , C 10/16
16] X and Y share profits in the ratio of 3:2. Z was admitted as a partner who gets 1/5th
share. New profit sharing ratio, if Z acquires 3/20 from X and 1/20 from Y would be:
a] 9:7:4 b] 8:8:4 c] 6:10:4 d] 10:6:4
17] Asha and Nisha are partners sharing profit in the ratio of 2:1. Asha’s son Ashish
was admitted for 1/4 share of which 1/8 was gifted by Asha to her son. The remaining
was contributed by Nisha. Goodwill of the firm is valued at ₹40,000. How much of the
goodwill will be credited to the old partners capital account?
a] ₹2,500 each b] ₹5,000 each c] ₹20,000 each d] ₹25,000 each.
18] If average profit is ₹15,000, Capital employed is ₹1,00,000 and Normal rate of return
is 10%, then the value of goodwill under capitalization method is;
a] ₹25,000 b] ₹50,000 c] ₹75,000 d] ₹10,000
II. Fill in The Blanks:
1] Old ratio is used to distribute accumulated profits and losses at the time of
admission of a new partner.
2] Profit or loss on revaluation is shared among the old partners in Old ratio.
3] Old ratio – New ratio = Sacrifice Ratio.
4] Accumulated losses are transferred to the capital accounts of the old partners at the
time of admission in their Old ratio.
5] General reserve is to be transferred to Old Partners Capital accounts at the time of
admission of a new partner.
6] Goodwill brought in by new partner in cash is to be distributed among old partners
in Sacrifice ratio.
7] If the amount brought by new partner is more than his share in capital, the excess is
known as Hidden goodwill.
8]Asset Account is debited for the increase in the value of an asset.
9] Unrecorded asset is to be credited to Revaluation account.
10] Due to change in profit sharing ratio, some partners will gain in future profits while
others will Loose.
11] Goodwill is an Intangible asset.
12] New Partner’s Capital account is credited for cash brought in by new partner for
his share of goodwill.
13] New profit sharing ratio is required for sharing future profits and also for
adjustment of capitals.

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III. Match the following type questions:
A B
a) Sacrifice ratio i) Old share – share sacrificed [c]
b) Goodwill ii) Share in future profits [e]
c) New share iii) Old share – New share [a]
d) Average profit method iv) AS-26 [g]
e) Right of new partner v) Intangible asset [b]
f) Shortage of funds vi) Valuation of Goodwill [d]
g) Accounting for Intangible asset vii) Reason for admission [f]
IV. True or False Questions.
1] Goodwill brought in cash by new partner is distributed among old partner in their
Sacrificing ratio. --- True.
2] In case of admission of a partner, profit or loss on revaluation is transferred to Old
Partners’ Capital Accounts. --- True.
3] Accumulated profit is transferred to all partners’ capital Accounts including new
partner. --- False.
4] The debit balance of Profit and Loss Account shown in the assets side of the Balance
Sheet will be debited to Old Partners Capital Accounts. --- True.
5] Increase in the value of an asset is credited to Revaluation Account --- True.
6] The traditional name of Revaluation A/c is ‘Profit and Loss Adjustment A/c’. --True.
7] Goodwill is an intangible asset. --- True.
8] Decrease in the value of liability is debited to Revaluation Account. --- False.
9] Sacrifice ratio is required to distribute the cash brought by new partner among old
partners for his share of goodwill. --- True.
10] Share sacrificed = Old share – New share. --- True.
V. Very short answer questions:
1] What is Partnership?
Ans: Partnership is a relation between two or more persons who join hands to set up a
business and share its profits and losses.
2] What do you mean by reconstitution of a Partnership Firm?
Ans: Any change in the existing agreement of partnership is known as reconstitution of
partnership firm.
3] State any one reason for admission of a new partner.
Ans: i) To increase the capital of the firm ii) To increase the goodwill of the firm.
4] State any one right acquired by a newly admitted partner.
Ans: i) Right to share profits of the firm. ii) Right to share assets of the firm.
5] Why the NPSR is required at the time of admission of a partner?
Ans: i) To share future profits and losses.
6] What is Goodwill?
Ans: Goodwill is the monetary value of good name or reputation of the business which
helps to earn more profit.

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7] State any one factor affecting the value of goodwill.
Ans: i) Nature of the business ii) Location of the business.
8] What is normal profit?
Ans: Normal profit means normal return on capital employed.
9] State any one method of valuation of goodwill.
Ans: i) Average profit method ii) Super profit method
10] Give the formula for sacrifice ratio.
Ans: Sacrifice ratio = Old Ratio – New Ratio.
11] Which account is to be debited to record the increase in the value of an asset?
Ans: Asset Account.
12] What is Revaluation Account?
Ans: Revaluation account is an account prepared to record increase or decrease in the
value of assets and liabilities and to know profit or loss on revaluation.
13] Which account will be credited when there is a loss on revaluation?
Ans: Revaluation Account.
14] Which account will be debited when the cash is brought by a new partner for his
share of goodwill?
Ans: Cash or Bank account.
15] What is hidden goodwill?
Ans: Hidden goodwill is the difference between total required capital and actual capital
of all partners.
Section- B: Two marks Questions:
1] When the goodwill is distributed among old partners in the sacrificing ratio?
Ans: When goodwill is brought in cash by the new partner, it is distributed among the
old partners in sacrificing ratio.
2] State any two matters which need adjustments in the books of the firm at the time
of admission of a new partner.
Ans: i) Revaluation of assets & liabilities ii) Valuation and adjustment of goodwill
3] What is sacrificing ratio?
Ans: Sacrificing ratio refers to the ratio in which the old partners agree to sacrifice their
share of profit in favor of the new partner.
4] Why the sacrifice ratio is calculated?
Ans: Sacrificing ratio is calculated in order to distribute the goodwill brought in cash
by new partner.
5] What is the need for the revaluation of assets and liabilities on the admission?
Ans: The need for the revaluation of assets and liabilities is to ascertain true financial
position of the business.
6] How do you close revaluation account when there is a profit?
Ans: If there is profit in revaluation account it is closed by debiting Revaluation A/c
and crediting Partners’ Capital A/c.

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7] What do you mean by hidden goodwill?
Ans: Hidden goodwill refers to the value of goodwill which is not given at the time of
admission. Goodwill is the difference between total required capital of the firm and
actual capital of all the partners.
8] Write journal entry for increase in the value of an asset in case of admission of
partner.
Ans: Asset A/c …………………………………..Dr
To Revaluation A/c
(Being increase in the value of an asset)
9] Write journal entry for decrease in the value of an asset in case of admission of
partner.
Ans: Revaluation A/c…………………………….Dr
To Asset A/c
(Being increase in the value of an asset)

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