Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Admission of a Partner

Question:

Read the following hypothetical text and answer the questions :
Suresh and Dinesh were partners in a fast-food corner sharing profits and losses in ratio 3:2. They sold fast food items across the counter and did home delivery too. Their initial fixed capital contribution was ₹1,20,000 and ₹80,000 respectively. At the end of first year their profit was ₹ 1,20,000 before allowing the remuneration of ₹3,000 per quarter to Suresh and ₹2,000 per half year to Dinesh. Such a promising performance for first year was encouraging, therefore, they decided to expand the area of operations. For this purpose, they needed a delivery van, a few Scotties and an additional person to support. Six months into the accounting year they decided to admit Rajesh as a new partner and offered him 20% as a share of profits along with monthly remuneration of ₹ 2,500. Rajesh was asked to introduce ₹1,30,000 for capital and ₹70,000 for premium for goodwill. Besides this Rajesh was required to provide Rs.1,00,000 as loan for two years.
Rajesh readily accepted the offer. The terms of the offer were duly executed and he was admitted as a partner.

Upon the admission of Rajesh the sacrifice for providing his share of profits would be done by whom?

Options:

Suresh only

Suresh and Dinesh in the ratio of 2:3

Suresh and Dinesh equally

Suresh and Dinesh in the ratio of 3:2

Correct Answer:

Suresh and Dinesh in the ratio of 3:2

Explanation:

Share of Rajesh=20% or 1/5th.
In the absence of any information, Suresh and Dinesh will sacrifce their share in the old profit sharing ratio.
Sacrifice of Suresh=3/5*1/5=3/25, Sacrifice of Dinesh=2/5*1/5=2/25
Therefore, sacrificng ratio will be 3:2.