Partnership accounts carry 34 out of 80 marks in Class 12 Accountancy. Master these 4 chapters and you have secured 42% of your paper.
Admission of a Partner — Exact Sequence
- 1.Calculate New Profit-Sharing Ratio
- 2.Calculate Sacrifice Ratio (Old minus New)
- 3.Value goodwill using given method
- 4.Pass goodwill entry: Dr. New Partner Capital, Cr. Sacrificing Partners in sacrifice ratio
- 5.Pass Revaluation Account entries
- 6.Adjust capitals if required
Tip
The most common mistake: students calculate goodwill correctly but write the wrong journal entry. Goodwill brought in cash goes to Sacrificing Partners — NOT Revaluation Account.
Retirement of a Partner — Sequence
- 1.Calculate Gaining Ratio (New minus Old)
- 2.Goodwill: Dr. Gaining Partners in gaining ratio, Cr. Retiring Partner
- 3.Pass Revaluation entries
- 4.Transfer Retiring Partner share of General Reserve
- 5.Calculate final amount due and pass settlement entry
Goodwill Valuation — All 5 Methods
| Method | Formula | When Used |
|---|---|---|
| Average Profit | Avg Profit x Years Purchase | Most common |
| Super Profit | (Avg Profit - Normal Profit) x Years Purchase | When normal rate given |
| Capitalisation of AP | Avg Profit / Normal Rate x 100 | When capitalise asked |
| Capitalisation of SP | Super Profit / Normal Rate x 100 | Less common |
| Annuity Method | Super Profit x Annuity Factor | Rarely tested |
Marks You Cannot Afford to Lose
- P&L Appropriation Account — always balance it with interest on capital, salary, commission
- Capital Account — Fixed vs Fluctuating: know which the question uses
- Neat ruled format for all accounts — presentation marks awarded