Partners P and Q hold capital ₹100,000 and ₹150,000 respectively with a profit‑sharing ratio of 4:3. They revalue the firm’s building, increasing its value by ₹80,000; the surplus is shared in the old profit‑sharing ratio. Partner R joins with capital ₹40,000 and will receive interest at 6% per annum for 9 months before admission. After admission the profit‑sharing ratio becomes P : Q : R = 6 : 3 : 1. The partnership earns a profit of ₹200,000 during the year of admission. Compute (i) the amount of revaluation surplus credited to each existing partner, (ii) the interest payable to R, and (iii) the final profit share of each partner after adjusting for interest.

Step-by-step solution

1. Distribute revaluation surplus in old ratio 4:3: Total parts = 7. P’s share = $80,000\times \frac{4}{7}=45,714.29$. Q’s share = $80,000\times \frac{3}{7}=34,285.71$.
2. Compute interest to R for 9 months at 6%: $40,000\times 0.06\times \frac{9}{12}=1,800$ rupees.
3. Subtract interest from total profit: $200,000-1,800=198,200$ rupees to be shared. New ratio parts = 6+3+1=10. P’s share = $\frac{6}{10}\times 198,200=118,920$. Q’s share = $\frac{3}{10}\times 198,200=59,460$. R’s share = $\frac{1}{10}\times 198,200=19,820$.
4. Answer: Surplus – P ₹45,714.29, Q ₹34,285.71; Interest – ₹1,800; Final shares – P ₹118,920, Q ₹59,460, R ₹19,820

Concept tested: Revaluation surplus, interest and profit sharing on admission

Published 1 October 2026 · How this solution was prepared and checked