Double Entry Book Keeping Ts Grewal Vol. I 2019 for Class 12 Commerce Accountancy Chapter 4 - Change In Profit Sharing Ratio Among The Existing Partners

Question 1:

A and B are sharing profits and losses equally. With effect from 1st April, 2019, they agree to share profits in the ratio of 4 : 3. Calculate individual partner's gain or sacrifice due to the change in ratio.

Answer:

Old Ratio (A and B) = 1 : 1

New Ratio (A and B) = 4 : 3

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

∴ A’s Gain = 1/14

B’s Sacrifice = 1/14

Question 2:

X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2019, they decide to share profits and losses in the ratio of 5 : 2 : 3. Calculate each partner's gain or sacrifice due to the change in ratio.

Answer:

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 5 : 2 : 3

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

∴ Z’s Gain = 1/10

Y’s Sacrifice = 1/10

Question 3:

X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2019, they decide to share profits and losses equally. Calculate each partner's gain or sacrifice due to the change in ratio.

Answer:

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 1 : 1 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

∴ Y’s Gain = 1/30

Z’s Gain = 4/30

X’s Sacrifice = 5/30

Question 4:

A, B and C are partners sharing profits and losses in the ratio of 5 : 4 : 1. Calculate new profit-sharing ratio, sacrificing ratio and gaining ratio in each of the following cases:
Case 1. C acquires 1/5th share from A.
Case 2. C acquires 1/5th share equally form A and B.
Case 3. A, B and C will share future profits and losses equally.
Case 4. C acquires 1/10th share of A and 1/2 share of B.

Answer:

$\begin{array}{l} Calculation of New Profit Sharing Ratio \\ Case 1 : \\ A:B:C = 5:4:1 (Old Ratio) \\ C acquires \frac{1}{5} th from A \\ A's sacrifice = \frac{1}{5} \\ C's gain = \frac{1}{5} \\ A = \frac{5}{10} - \frac{1}{5} = \frac{5 - 2}{10} = \frac{3}{10} \\ B = \frac{4}{10} \\ C = \frac{1}{10} + \frac{1}{5} = \frac{1 + 2}{10} = \frac{3}{10} \\ A:B:C = 3:4:3 \\ Case 2 : \\ A:B:C = 5:4:1 (Old Ratio) \\ C acquires \frac{1}{5} th share equally from A \\ A's sacrifice = \frac{1}{10} \\ B's sacrifice = \frac{1}{10} \\ C's gain = \frac{1}{5} \\ A = \frac{5}{10} - \frac{1}{10} = \frac{5 - 1}{10} = \frac{4}{10} \\ B = \frac{4}{10} - \frac{1}{10} = \frac{4 - 1}{10} = \frac{3}{10} \\ C = \frac{1}{10} + \frac{1}{5} = \frac{1 + 2}{10} = \frac{3}{10} \\ A:B:C = 4:3:3 \\ Case 3 : \\ A:B:C = 5:4:1 (Old Ratio) \\ A:B:C = 1:1:1 (New Ratio) \\ A = \frac{5}{10} - \frac{1}{3} = \frac{15 - 10}{30} = \frac{5}{30} (S a c r i f i c e) \\ B = \frac{4}{10} - \frac{1}{3} = \frac{12 - 10}{30} = \frac{2}{30} (S a c r i f i c e) \\ C = \frac{1}{10} - \frac{1}{3} = \frac{3 - 10}{30} = - \frac{7}{30} (G a i n) \\ Case 4 : \\ A:B:C = 5:4:1 (Old Ratio) \\ A's sacrifice to C = \frac{5}{10} \times \frac{1}{10} = \frac{1}{20} \\ B's sacrifice to C = \frac{4}{10} \times \frac{1}{2} = \frac{4}{20} \\ C's gain = \frac{1}{20} + \frac{4}{20} = \frac{5}{20} \\ A = \frac{5}{10} - \frac{1}{20} = \frac{10 - 1}{20} = \frac{9}{20} \\ B = \frac{4}{10} - \frac{4}{20} = \frac{8 - 4}{20} = \frac{4}{20} \\ C = \frac{1}{10} + \frac{5}{20} = \frac{2 + 5}{20} = \frac{7}{20} \\ A:B:C = 9:4:7 \end{array}$

Question 5:

A, B and C shared profits and losses in the ratio of 3 : 2 : 1 respectively. With effect from 1st April, 2019, they agreed to share profits equally. The goodwill of the firm was valued at ₹ 18,000. Pass necessary Journal entries when: (a) Goodwill is adjusted through Partners' Capital Accounts; and (b) Goodwill is raised and written off.

Answer:

Calculation of Gain/Sacrifice made by the partners:

Particulars	A	B	C
Old Ratio	3/6	2/6	1/6
New Ratio	1/3	1/3	1/3
Gain/Sacrifice	1/6 (Sacrifice)	Nil	-1/6 (Gain)

Case a)

Journal
Date	Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	C’s Capital A/c (18,000×1/6)	Dr.		3,000
	To A’s Capital A/c (18,000×1/6)				3,000
	(Being Adjustment for goodwill)

Case b)

Journal
Date	Particular		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	Goodwill A/c	Dr.		18,000
	To A’s Capital A/c (18,000×3/6)				9,000
	To B’s Capital A/c (18,000×2/6)				6,000
	To C’s Capital A/c (18,000×1/6)				3,000
	(Being goodwill raised in the books)

	A’s Capital A/c (18,000×1/3)	Dr.		6,000
	B’s Capital A/c (18,000×1/3)	Dr.		6,000
	C’s Capital A/c (18,000×1/3)	Dr.		6,000
	To Goodwill A/c				18,000
	(Being goodwill so raised written off)

Question 6:

X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. From 1st April, 2018, they decided to share profits and losses equally. The Partnership Deed provides that in the event of any change in the profit-sharing ratio, the goodwill should be valued at two years' purchase of the average profit of the preceding five years. The profits and losses of the preceding years ended 31st March, are:

Year	2013-14	2014-15	2015-16	2016-17	2017-18
Profits (₹)	70,000	85,000	45,000	35,000	10,000 (Loss)

You are required to calculate goodwill and pass journal entry.

Answer:

Journal
Date 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
April 1	Y’s Capital A/c	Dr.		3,000
	Z’s Capital A/c	Dr.		12,000
	To X’s Capital A/c				15,000
	(Amount of goodwill adjusted on change in profit sharing ratio)

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 1 : 1 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Calculation of Goodwill

WN 3 Adjustment of Goodwill

Question 7:

Mandeep, Vinod and Abbas are partners sharing profits and losses in the ratio of 3 : 2 : 1. From 1st April, 2019 they decided to share profits equally. The Partnership Deed provides that in the event of any change in profit-sharing ratio, goodwill shall be valued at three years' purchase of average profit of last five years. The profits and losses of past five years are:
Profit − Year ended 31st March, 2015 − ₹ 1,00,000; 2016 − ₹ 1,50,000; 2018 − ₹ 2,00,000; 2019 − ₹ 2,00,000.
Loss − Year ended 31st March, 2017 − ₹ 50,000.
Pass the Journal entry showing the working.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	Abbas’s Capital A/c	Dr.		60,000
	To Mandeep’s Capital A/c				60,000
	(Adjustment entry made for change in ratio)

Working Notes:

WN1: Calculation of Sacrifice or Gain

$\begin{array}{l} Mandeep :Vinod :Abbas = 3 :2:1 (Old Ratio) \\ Mandeep :Vinod :Abbas = 1:1:1 (New Ratio) \\ Sacrificing (or Gaining Ratio) = Old Ratio - New Ratio \\ Mandeep's share = \frac{3}{6} - \frac{1}{3} = \frac{3 - 2}{6} = \frac{1}{6} (S a c r i f i c e) \\ Vinod's share = \frac{2}{6} - \frac{1}{3} = \frac{2 - 2}{6} = 0 \\ Abbas's share = \frac{1}{6} - \frac{1}{3} = \frac{1 - 2}{6} = - \frac{1}{6} (G a i n) \end{array}$

WN2: Valuation of Goodwill

$\begin{array}{l} Goodwill = Average Profit \times No. of years' Purchase \\ = 1, 2 0,000 \times 3 = Rs 3,60,000 \end{array}$

$\begin{array}{l} Average Profit = \frac{Total Profits of past years given}{Number of years} \\ = \frac{1, 00, 000 + 1, 50, 000 + 2, 00, 000 + 2, 00, 000 - 50, 000}{5} = Rs 1,20,000 \end{array}$
WN3: Adjustment of Goodwill

$\begin{array}{l} Amount debited to Abbas's Capital A/c = 3,60,000 \times \frac{1}{6} = Rs 60,000 (share of gain) \\ Amount credited to Mandeep's Capital A/c = 3,60,000 \times \frac{1}{6} = Rs 60,000 (share of sacrifice) \end{array}$

Question 8:

X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2, decided to share future profits and losses equally with effect from 1st April, 2019. On that date, the goodwill appeared in the books at ₹ 12,000. But it was revalued at ₹ 30,000. Pass Journal entries assuming that goodwill will not appear in the books of account.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	X’s Capital A/c	Dr.		6,000
	Y’s Capital A/c	Dr.		3,600
	Z’s Capital A/c	Dr.		2,400
	To Goodwill A/c				12,000
	(Goodwill written off)

2019	Y’s Capital A/c	Dr.		1,000
April 1	Z’s Capital A/c	Dr.		4,000
	To X’s Capital A/c				5,000
	(Amount of goodwill adjusted on change in profit sharing ratio)

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 1 : 1 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Writing off of Old Goodwill

WN 3 Adjustment of Goodwill

Question 9:

A and B are partners in a firm sharing profits in the ratio of 2 : 1. They decided with effect from 1st April, 2018, that they would share profits in the ratio of 3 : 2. But, this decision was taken after the profit for the year ended 31st March, 2019 of ₹ 90,000 was distributed in the old ratio.
The profits for the year ended 31st March, 2017 and 2018 were ₹ 60,000 and ₹ 75,000 respectively. It was decided that Goodwill Account will not be opened in the books of the firm and necessary adjustment be made through Capital Accounts which on 31st March, 2019 stood at ₹ 1,50,000 for A and ₹ 90,000 for B.
Pass necessary Journal entries and prepare Capital Accounts.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2018 April 1	A’s Capital A/c	Dr.		6,000
	To B’s Capital A/c				6,000
	(Adjustment of profit for 2018-19 on change in profit sharing ratio)

April 1	B’s Capital A/c	Dr.		9,000
	To A’s Capital A/c				9,000
	(Adjustment of goodwill made on change in profit sharing ratio)

Partners’ Capital Accounts
Dr.					Cr.
Particulars	A	B	Particulars	A	B
B's Capital A/c	6,000	–	Balance b/d	1,50,000	90,000
(Adjustment of profit)			A's Capital A/c	–	6,000
A's Capital A/c	–	9,000	(Adjustment Profit)
(Adjustment of Goodwill)			B's Capital A/c	9,000	–
Balance c/d	1,53,000	87,000	(Adjustment of Goodwill)
	1,59,000	96,000		1,59,000	96,000

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (A and B) = 2 : 1

New Ratio (A and B) = 3 : 2

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Adjustment of Profit for 2016-17

WN 3 Calculation of New Goodwill

$Goodwill = Profit of 2014 - 15 + Profit of 2015 - 16 = 60, 000 + 75, 000 = Rs 1, 35, 000$

WN 4 Adjustment of Goodwill

Question 10:

Jai and Raj are partners sharing profits in the ratio of 3 : 2. With effect from 1st April, 2019, they decided to share profits equally. Goodwill appeared in the books at ₹ 25,000. As on 1st April, 2019, it was valued at ₹ 1,00,000. They decided to carry goodwill in the books of the firm.
Pass the Journal entry giving effect to the above.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 Apr.1	Raj’s Capital A/c	Dr.		7,500
	To Jai’s Capital A/c				7,500
	(Adjustment for goodwill)

Working Notes:

Calculation of Gaining/Sacrificing Ratio

Sacrificing Ratio = Old Ratio ─ New Ratio

$Jai = \frac{3}{5} - \frac{1}{2} = \frac{1}{10} (sacrifice) Raj = \frac{2}{5} - \frac{1}{2} = \frac{1}{10} (gain)$

Goodwill to be adjusted = 1,00,000 ─ 25,000 = 75,000

$Jai' s Share = 75, 000 \times \frac{1}{10} = 7, 500 (credit, since sacrificing) Raj' s Share = 75, 000 \times \frac{1}{10} = 7, 500 (debit, since gaining)$

Question 11:

X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2. With effect from 1st April, 2019, they decided to share future profits equally. On the date of change in the profit-sharing ratio, the Profit and Loss Account showed a credit balance of ₹ 1,50,000. Record the necessary Journal entry for the distribution of the balance in the Profit and Loss Account immediately before the change in the profit-sharing ratio.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	Profit & Loss A/c	Dr.		1,50,000
	To X’s Capital A/c				90,000
	To Y’s Capital A/c				60,000
	(Adjustment of balance in P&L A/c in old ratio)

Working Notes:

WN1 Calculation of Share of Profit and Loss A/c

$X' s share = 1, 50, 000 \times \frac{3}{5} = 90, 000 Y' s share = 1, 50, 000 \times \frac{2}{5} = 60, 000$

Question 12:

A and B are partners in a firm sharing profits in the ratio of 4 : 1. They decided to share future profits in the ratio of 3 : 2 w.e.f. 1st April, 2019. On that day, Profit and Loss Account showed a debit balance of ₹ 1,00,000. Pass Journal entry to give effect to the above.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	A’s Capital A/c	Dr.		80,000
	B’s Capital A/c	Dr.		20,000
	To Profit & Loss A/c				1,00,000
	(Profit & Loss distributed)

Question 13:

X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. They decide to share future profits and losses in the ratio of 2 : 3 : 5 with effect from 1st April, 2019. They also decide to record the effect of the following accumulated profits, losses and reserves without affecting their book values by passing a single entry .

	Book Values (₹)
General Reserve	6,000
Profit and Loss A/c (Credit)	24,000
Advertisement Suspense A/c	12,000

Pass an Adjustment Entry.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	Z’s Capital A/c	Dr.		5,400
	To X’s Capital A/c				5,400
	(Adjustment for General Reserve, Profit and Loss A/c and Advertisement Suspense account is made on change in profit sharing ratio)

_{Working Notes:}

_{WN 1}

WN 2 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 2 : 3 : 5

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

Question 14:

A, B and C who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the Journal entry to distribute 'Workmen Compensation Reserve' of ₹ 1,20,000 at the time of change in profit-sharing ratio, when:
(i) no information is given; (ii) there is no claim against it.

Answer:

(i) & (ii)

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)

	Workmen Compensation Reserve A/c	Dr.		1,20,000
	To A’s Capital A/c				60,000
	To B’s Capital A/c				36,000
	To C’s Capital A/c				24,000
	(Workmen Compensation Reserve distributed)

Note:

In the both the cases, Workmen Compensation Reserve should be distributed in old ratio i.e., 5:3:2.

Question 15:

X, Y and Z who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the journal entry to distribute 'Workmen Compensation Reserve' of ₹ 1,20,000 at the time of change in profit-sharing ratio, when there is a claim of ₹ 80,000 against it.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	Workmen Compensation Reserve A/c	Dr.		1,20,000
	To X’s Capital A/c				20,000
	To Y’s Capital A/c				12,000
	To Z’s Capital A/c				8,000
	To Workmen Compensation Claim A/c				80,000
	(Adjustment of balance in Workmen Compensation Reserve A/c in old ratio)

Working Notes:

WN1 Calculation of Share of Workmen Compensation Reserve
$X' s share = 40, 000 \times \frac{5}{10} = 20, 000 Y' s share = 40, 000 \times \frac{3}{10} = 12, 000 Z' s share = 40, 000 \times \frac{2}{10} = 8, 000$

Question 16:

X, Y and Z who are sharing profits in the ratio of 5 : 3 : 2, decide to share profits in the ratio of 2 : 3 : 5 with effect from 1st April, 2019. Workmen Compensation Reserve appears at ₹ 1,20,000 in the Balance Sheet as at 31st March, 2019 and Workmen Compensation Claim is estimated at ₹ 1,50,000. Pass Journal entries for the accounting treatment of Workmen Compensation Reserve.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1
	Workmen Compensation Reserve A/c	Dr.		1,20,000
	Revaluation A/c	Dr.		30,000
	To Provision for Workmen Compensation Claim A/c				1,50,000
	(Provision created and shortfall charged to Revaluation A/c)

	X’s Capital A/c	Dr.		15,000
	Y’s Capital A/c	Dr.		9,000
	Z’s Capital A/c	Dr.		6,000
	To Revaluation A/c				30,000
	(Loss on revaluation transferred to Partners’ Capital A/c)

Question 17:

A, B and C who are presently sharing profits and losses in the ratio of 5 : 3 : 2 decide to share future profits and losses in the ratio of 2 : 3 : 5. Give the journal entry to distribute 'Investments Fluctuation Reserve' of ₹ 20,000 at the time of change in profit-sharing ratio, when investment (market value ₹ 95,000) appears in the books at ₹ 1,00,000.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	Investment Fluctuation Reserve A/c	Dr.		5,000
	To Investments A/c				5,000
	(Adjustment for decrease in the value of investments)

	Investment Fluctuation Reserve A/c	Dr.		15,000
	To A’s Capital A/c				7,500
	To B’s Capital A/c				4,500
	To C’s Capital A/c				3,000
	(Adjustment of balance in Investment Fluctuation Reserve A/c in old ratio)

Working Notes:
WN1 Calculation of Share of Investment Fluctuation Reserve
$A' s share = 15, 000 \times \frac{5}{10} = 7, 500 B' s share = 15, 000 \times \frac{3}{10} = 4, 500 C' s share = 15, 000 \times \frac{2}{10} = 3, 000$

Question 18:

Nitin, Tarun and Amar are partners sharing profits equally and decide to share profits in the ratio of 2 : 2 : 1 w.e.f. 1st April, 2019. The extract of their Balance Sheet as at 31st March, 2019 is as follows:

Liabilities	₹	Assets	₹
Investments Fluctuation Reserve	60,000	Investments (At Cost)	4,00,000

Pass the Journal entries in each of the following situations:
(i) When its Market Value is not given;
(ii) When its Market Value is ₹ 4,00,000;
(iii) When its Market Value is ₹ 4,24,000;
(iv) When its Market Value is ₹ 3,70,000;
(v) When its Market Value is ₹ 3,10,000.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	Investment Fluctuation Reserve A/c	Dr.		60,000
	To Nitin’s Capital A/c				20,000
	To Tarun’s Capital A/c				20,000
	To Amar’s Capital A/c				20,000
	(Investment Fluctuation Reserve distributed)

	Investment Fluctuation Reserve A/c	Dr.		60,000
	To Nitin’s Capital A/c				20,000
	To Tarun’s Capital A/c				20,000
	To Amar’s Capital A/c				20,000
	(Investment Fluctuation Reserve distributed)

	Investment Fluctuation Reserve A/c	Dr.		60,000
	To Nitin’s Capital A/c				20,000
	To Tarun’s Capital A/c				20,000
	To Amar’s Capital A/c				20,000
	(Investment Fluctuation Reserve distributed)

	Investments A/c	Dr.		24,000
	To Revaluation A/c				24,000
	(Investments revalued)

	Revaluation A/c	Dr.		24,000
	To Nitin’s Capital A/c				8,000
	To Tarun’s Capital A/c				8,000
	To Amar’s Capital A/c				8,000
	(Revaluation profit transferred to Partners’ Capital A/c)

	Investment Fluctuation Reserve A/c	Dr.		60,000
	To Investment A/c				30,000
	To Nitin’s Capital A/c				10,000
	To Tarun’s Capital A/c				10,000
	To Amar’s Capital A/c				10,000
	(Investment Fluctuation Reserve distributed)

	Investment Fluctuation Reserve A/c	Dr.		60,000
	Revaluation A/c	Dr.		30,000
	To Investment A/c				90,000
	(Decrease in investments set off against IFR and balance debited to Revaluation A/c)

	Nitin’s Capital A/c	Dr.		10,000
	Tarun’s Capital A/c	Dr.		10,000
	Amar’s Capital A/c	Dr.		10,000
	To Revaluation A/c				30,000
	(Loss on revaluation transferred to Partners’ Capital A/c)

Question 19:

X and Y are partners sharing profits in the ratio of 2 : 1. On 31st March, 2019, their Balance Sheet showed General Reserve of ₹ 60,000. It was decided that in future they will share profits and losses in the ratio of 3 : 2. Pass necessary Journal entry in each of the following alternative cases:
(i) When General Reserve is not to be shown in the new Balance Sheet.
(ii) When General Reserve is to be shown in the new Balance Sheet.

Answer:

(i) If they do not want to show General Reserve in the new Balance Sheet

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	General Reserve A/c	Dr.		60,000
	To X’s Capital A/c				40,000
	To Y’s Capital A/c				20,000
	(Adjustment of balance in General Reserve A/c in old ratio)

Working Notes:

WN1 Calculation of Share of General Reserve

$X' s share = 60, 000 \times \frac{2}{3} = 40, 000 Y' s share = 60, 000 \times \frac{1}{3} = 20, 000$

(ii) If they want to show General Reserve in the new Balance Sheet

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	Y’s Capital A/c	Dr.		4,000
	To X’s Capital A/c				4,000
	(Adjustment of balance in General Reserve A/c in sacrificing/gaining ratio)

Working Notes:

WN1 Calculation of Gain/Sacrfice

$Sacrificing Ratio = Old Ratio - New Ratio X = \frac{2}{3} - \frac{3}{5} = \frac{1}{15} (sacrifice) Y = \frac{1}{3} - \frac{2}{5} = - \frac{1}{15} (gain)$

WN2 Calculation of Compensation by Y to X

$Amount to be compensated = 60, 000 \times \frac{1}{15} = 4, 000$

Question 20:

Bhavya and Sakshi are partners in a firm, sharing profits and losses in the ratio of 3 : 2. On 31st March, 2018 their Balance Sheet was as under:

BALANCE SHEET OF BHAVYA AND SAKSHI
*as at 31st March, 2018*
Liabilities	Amount (₹)	Assets	Amount (₹)
Sundry Creditors	13,800	Furniture	16,000
General Reserve	23,400	Land and Building	56,000
Investment Fluctuation Fund	20,000	Investments	30,000
Bhavya's Capital	50,000	Trade Receivables	18,500
Sakshi's Capital	40,000	Cash in Hand	26,700
	1,47,200		1,47,200

The partners have decided to change their profit sharing ratio to 1 : 1 with immediate effect. For the purpose, they decided that:
(i) Investments to be valued at ₹ 20,000.
(ii) Goodwill of the firm be valued at ₹ 24,000.
(iii) General Reserve not to be distributed between the partners.
You are required to pass necessary Journal entries in the books of the firm. Show workings.

Answer:

In the books of Bhavya and Sakshi Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2018
March 31	Investment Fluctuation Fund A/c	Dr.		20,000
	To Investments A/c				10,000
	To Bhavya’s Capital A/c				6,000
	To Sakshi’s Capital A/c				4,000
	(Being depreciation in the value of investment provided for and excess amount distributed)

March 31	Sakshi’s Capital A/c (24,000×1/10)	Dr.		2,400
	To Bhavya’s Capital A/c (24,000×1/10)				2,400
	(Being adjustment for goodwill due to change in profit-sharing ratio)

March 31	Sakshi’s Capital A/c (23,400×1/10)	Dr.		2,340
	To Bhavya’s Capital A/c (23,400×1/10)				2,340
	(Being adjustment for general reserve not distributed)

Working Notes:

Particulars	Bhavya	Sakshi
Old Ratio	3/5	2/5
New Ratio	1/2	1/2
Gain/Sacrifice	(3/5 – 1/2)= 1/10 (Sacrifice)	(2/5 – 1/2)= (-1/10) (Gain)

Question 21:

X, Y and Z share profits as 5 : 3 : 2. They decide to share their future profits as 4 : 3 : 3 with effect from 1st April, 2019. On this date the following revaluations have taken place:

	Book Values (₹)	Revised Values (₹)
Investments	22,000	25,000
Plant and Machinery	25,000	20,000
Land and Building	40,000	50,000
Outstanding Expenses	5,600	6,000
Sundry Debtors	60,000	50,000
Trade Creditors	70,000	60,000

Pass necessary adjustment entry to be made because of the above changes in the values of assets and liabilities. However, old values will continue in the books .

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	Z’s Capital A/c	Dr.		760
	To X’s Capital A/c				760
	(Adjustment of revaluation profit made)

Working Notes:

WN 1 Calculation of Net Profit or Loss on Revaluation

Particulars	Amount (₹)
Increase in Investment	3,000 (Cr.)
Decrease in Plant and Machinery	(5,000) (Dr.)
Increase in Land and Building	10,000 (Cr.)
Increase in Outstanding Expenses	(400) (Dr.)
Decrease in Sunday Debtors	(10,000) (Dr.)
Decrease in Trade Creditors	10,000 (Cr.)
Profit on Revaluation	7,600 (Cr.)

WN 2 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 4 : 3 : 3

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 3 Adjustment of Revaluation Profit

Question 22:

Ashish, Aakash and Amit are partners sharing profits and losses equally. The Balance Sheet as at 31st March, 2019 was as follows:


Liabilities		Amount (₹)	Assets	Amount (₹)
Sundry Creditors		75,000	Cash in Hand	24,000
General Reserve		90,000	Cash at Bank	1,40,000
Capital A/cs:			Sundry Debtors	80,000
Ashish	3,00,000		Stock	1,40,000
Aakash	3,00,000		Land and Building	4,00,000
Amit	2,75,000	8,75,000	Machinery	2,50,000
			Advertisement Suspense	6,000

		10,40,000		10,40,000

The partners decided to share profits in the ratio of 2 : 2 : 1 w.e.f. 1st April, 2019. They also decided that:
(i) Value of stock to be reduced to ₹ 1,25,000.
(ii) Value of machinery to be decreased by 10%.
(iii) Land and Building to be appreciated by ₹ 62,000.
(iv) Provision for Doubtful Debts to be made @ 5% on Sundry Debtors.
(v) Aakash was to carry out reconstitution of the firm at a remuneration of ₹ 10,000.
Pass necessary Journal entries to give effect to the above.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	General Reserve A/c	Dr.		90,000
	To Ashish’s Capital A/c				30,000
	To Akash’s Capital A/c				30,000
	To Amit’s Capital A/c				30,000
	(Reserve distributed)

April 1	Ashish’s Capital A/c	Dr.		2,000
	Akash’s Capital A/c	Dr.		2,000
	Amit’s Capital A/c	Dr.		2,000
	To Advertisement Suspense A/c				6,000
	(Advertisement Suspense distributed)

April 1	Revaluation A/c	Dr.		54,000
	To Stock A/c				15,000
	To Machinery A/c				25,000
	To Provision for Doubtful Debts A/c				4,000
	To Akash’s Capital A/c (Remuneration)				10,000
	(Assets revalued)

April 1	Land & Building A/c	Dr.		62,000
	To Revaluation A/c				62,000
	(Assets revalued)

April 1	Revaluation A/c	Dr.		8,000
	To Ashish’s Capital A/c				2,666
	To Akash’s Capital A/c				2,666
	To Amit’s Capital A/c				2,667
	(Profit made)

Question 23:

A, B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2019 stood as follows:


Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/cs:			Land and Building	3,50,000
A	2,50,000		Machinery	2,40,000
B	2,50,000		Computers	70,000
C	2,00,000	7,00,000	Investments (Market value ₹ 90,000)	1,00,000
General Reserve		60,000	Sundry Debtors	50,000
Investments Fluctuation Reserve		30,000	Cash in Hand	10,000
Sundry Creditors		90,000	Cash at Bank	55,000
			Advertisement Suspense	5,000
		8,80,000		8,80,000

They decided to share profits equally w.e.f. 1st April, 2019. They also agreed that:
(i) Value of Land and Building be decreased by 5%.
(ii) Value of Machinery be increased by 5%.
(iii) A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
(iv) A Motor Cycle valued at ₹ 20,000 was unrecorded and is now to be recorded in the books.
(v) Out of Sundry Creditors, ₹ 10,000 is not payable.
(vi) Goodwill is to be valued at 2 years' purchase of last 3 years profits. Profits being for 2018-19 − ₹ 50,000 (Loss); 2017-18 − ₹ 2,50,000 and 2016-17 − ₹ 2,50,000.
(vii) C was to carry out the work for reconstituting the firm at a remuneration (including expenses) of ₹ 5,000. Expenses came to ₹ 3,000.
Pass Journal entries and prepare Revaluation Account.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	General Reserve A/c	Dr.		60,000
	To A’s Capital A/c				30,000
	To B’s Capital A/c				18,000
	To C’s Capital A/c				12,000
	(Reserve distributed)

	A’s Capital A/c	Dr		2,500
	B’s Capital A/c	Dr.		1,500
	C’s Capital A/c	Dr.		1,000
	To Advertisement Suspense A/c				5,000
	(Advertisement Suspense distributed)

	Investment Fluctuation Reserve A/c	Dr.		30,000
	To Investment A/c				10,000
	To A’s Capital A/c				10,000
	To B’s Capital A/c				6,000
	To C’s Capital A/c				4,000
	(Investment Fluctuation Reserve distributed)

	Machinery A/c	Dr.		12,000
	Motor Cycle A/c	Dr.		20,000
	Creditors A/c	Dr.		10,000
	To Revaluation A/c				42,000
	(Assets revalued)

	Revaluation A/c			25,000
	To Land & Building A/c				17,500
	To Provision for Doubtful Debts A/c				2,500
	To Bank A/c (Remuneration)				5,000
	(Assets revalued)

	Revaluation A/c			17,000
	To A’s Capital A/c				8,500
	To B’s Capital A/c				5,100
	To C ’s Capital A/c				3,400
	(Profit on revaluation transferred to Partners’ Capital A/c)

	B’s Capital A/c	Dr.		10,000
	C ’s Capital A/c	Dr.		40,000
	To A’s Capital A/c				50,000
	(Goodwill adjusted)

Revaluation A/c
Dr.					Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Land & Building A/c		17,500	Machinery A/c	12,000
Provision for Doubtful Debts A/c		2,500	Motor Cycle A/c	20,000
Bank A/c (Remuneration)		5,000	Creditors A/c	10,000
Profit transferred to:
A	8,500
B	5,100
C	3,400	17,000
		42,000		42,000

Working Notes:

WN1: Calculation of sacrifice or gain

$\begin{array}{l} A:B:C = 5 :3:2 (Old Ratio) \\ A:B:C = 1:1:1 (New Ratio) \\ Sacrificing (or Gaining Ratio) = Old Ratio - New Ratio \\ A's share = \frac{5}{10} - \frac{1}{3} = \frac{15 - 10}{30} = \frac{5}{30} (S a c r i f i c e) \\ B's share = \frac{3}{10} - \frac{1}{3} = \frac{9 - 10}{30} = - \frac{1}{30} (G a i n) \\ C's share = \frac{2}{10} - \frac{1}{3} = \frac{6 - 10}{30} = - \frac{4}{30} (G a i n) \end{array}$

WN2: Valuation of Goodwill

$\begin{array}{l} Goodwill = Average Profit \times No. of years' Purchase \\ = 1, 5 0,000 \times 2 = Rs 3,00,000 \end{array}$
WN3: Adjustment of Goodwill
$\begin{array}{l} Amount credited to A's Capital A/c = 3,00,000 \times \frac{5}{30} = Rs 50,000 \\ Amount debited to B's Capital A/c = 3,00,000 \times \frac{1}{30} = Rs 10,000 \\ Amount debited to C's Capital A/c = 3,00,000 \times \frac{4}{30} = Rs 40,000 \end{array}$

Question 24:

A, B and C are sharing profits and losses in the ratio of 2 : 2 : 1. They decided to share profit w.e.f. 1st April, 2019 in the ratio of 5 : 3 : 2. They also decided not to change the values of assets and liabilities in the books of account. The book values and revised values of assets and liabilities as on the date of change were as follows:

	Book values (₹)	Revised values (₹)
Machinery	2,50,000	3,00,000
Computers	2,00,000	1,75,000
Sundry Creditors	90,000	75,000
Outstanding Expenses	15,000	25,000

Pass an adjustment entry.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	A’s Capital A/c $(30, 000 \times \frac{1}{10} = 3, 000)$	Dr.		3,000
	To B’s Capital A/c				3,000
	(Adjustment entry made for change in ratio)

Working Notes:

WN1: Calculation of Sacrifice or Gain

$\begin{array}{l} A:B:C = 2 :2:1 (Old Ratio) \\ A:B:C = 5 :3:2 (New Ratio) \\ Sacrificing (or Gaining Ratio) = Old Ratio - New Ratio \\ A's share = \frac{2}{5} - \frac{5}{10} = \frac{4 - 5}{10} = - \frac{1}{10} (G a i n) \\ B's share = \frac{2}{5} - \frac{3}{10} = \frac{4 - 3}{10} = \frac{1}{10} (S a c r i f i c e) \\ C's share = \frac{1}{5} - \frac{2}{10} = \frac{2 - 2}{10} = 0 \end{array}$

WN2: Calculation of Profit or Loss on Revaluation

Revaluation A/c
Dr.				Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
Computers A/c	25,000	Machinery A/c	50,000
Outstanding expenses A/c	10,000	Creditors A/c	15,000
Profit on Revaluation	30,000

	65,000		65,000

Question 25:

X, Y and Z are partners sharing profits and losses in the ratio of 7 : 5 : 4. Their Balance Sheet as at 31st March, 2019 stood as:


Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/cs:			Sundry Assets	7,00,000
X	2,10,000
Y	1,50,000
Z	1,20,000	4,80,000
General Reserve		65,000
Profit and Loss A/c		25,000
Creditors		1,30,000

		7,00,000		7,00,000

Partners decided that with effect from 1st April, 2019, they will share profits and losses in the ratio of 3 : 2 : 1. For this purpose, goodwill of the firm was valued at ₹ 1,50,000. The partners neither want to record the goodwill nor want to distribute the General Reserve and profits.
Pass a Journal entry to record the change and prepare Balance Sheet of the constituted firm.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	X’s Capital A/c	Dr.		15,000
	Y’s Capital A/c	Dr.		5,000
	To Z’s Capital A/c				20,000
	(Adjustment made for Goodwill, General Reserve and Profit and Loss Account on change in profit sharing ratio)

Balance Sheet as on 01st April, 2019
Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/c s:			Sunday Assets	7,00,000
X	1,95,000
Y	1,45,000
Z	1,40,000	4,80,000
General Reserve		65,000
Profit and Loss A/c		25,000
Creditors		1,30,000
		7,00,000		7,00,000

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 7 : 5 : 4

New Ratio (X, Y and Z) = 3 : 2 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Adjustment of General Reserve, Profit and Loss Account and Goodwill

Total Amount for Adjustment = General Reserve + Profit and Loss Account + Goodwill

= 65,000 + 25,000 + 1,50,000 = Rs 2,40,000

WN 3

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Z's Capital A/c	15,000	5,000	–	Balance b/d	2,10,000	1,50,000	1,20,000
				X's Capital A/c	–	–	15,000
				Y's Capital A/c	–	–	5,000
Balance c/d	1,95,000	1,45,000	1,40,000
	2,10,000	1,50,000	1,40,000		2,10,000	1,50,000	1,40,000

Question 26:

A, B and C were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance Sheet as on 31st March, 2015 was as follows:


Liabilities		Amount (₹)	Assets	Amount (₹)
Creditors		50,000	Land	50,000
Bills Payable		20,000	Building	50,000
General Reserve		30,000	Plant	1,00,000
Capital A/cs:			Stock	40,000
A	1,00,000		Debtors	30,000
B	50,000		Bank	5,000
C	25,000	1,75,000
		2,75,000		2,75,000

From 1st April, 2015, A, B and C decided to share profits equally. For this it was agreed that:
(i) Goodwill of the firm will be valued at ₹ 1,50,000.
(ii) Land will be revalued at ₹ 80,000 and building be depreciated by 6%.
(iii) Creditors of ₹ 6,000 were not likely to be claimed and hence should be written off.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm.

Answer:

Revaluation Account
Dr.			Cr.
Particulars		Amount (Rs)	Particulars	Amount (Rs)
Building A/c		3,000	Land A/c	30,000
Revaluation Profit			Creditors A/c	6,000
A	16,500
B	11,000
C	5,500	33,000

		36,000		36,000

Partners’ Capital Account
Dr.				Cr.
Particulars	A	B	C	Particulars	A	B	C
A’s Capital A/c			25,000	Balance b/d	1,00,000	50,000	25,000
Balance c/d	1,56,500	71,000	10,500	R/v Profit	16,500	11,000	5,500
				General Reserve	15,000	10,000	5,000
				C’s Capital A/c	25,000
	1,56,500	71,000	35,500		1,56,500	71,000	35,500

Balance Sheet as on March 31, 2015
Liabilities		Amount (Rs)	Assets		Amount (Rs)
Capital A/c			Land	50,000
A	1,56,500		Add: Increase	30,000	80,000
B	71,000		Building	50,000
C	10,500	2,38,000	Less: Dep.	3,000	47,000
			Plant		1,00,000
Creditors	50,000		Bank		5,000
Less: Written-off	6,000	44,000	Stock		40,000
Bills Payable		20,000	Debtors		30,000

		3,02,000			3,02,000

Working Notes

Question 27:

A and B are partners sharing profits in the ratio of 4 : 3. Their Balance Sheet as at 31st March, 2019 stood as:


Liabilities		Amount (₹)	Assets	Amount (₹)
Sundry Creditors		28,000	Cash	20,000
Reserve		42,000	Sundry Debtors	1,20,000
Capital A/cs:			Stock	1,40,000
A	2,40,000		Fixed Assets	1,50,000
B	1,20,000	3,60,000
		4,30,000		4,30,000

They decided that with effect from 1st April, 2019, they will share profits and losses in the ratio of 2 : 1. For this purpose they decided that:
(i) Fixed Assets are to be reduced by 10%.
(ii) A Provision for Doubtful Debts of 6% be made on Sundry Debtors.
(iii) Stock be valued at ₹ 1,90,000.
(iv) An amount of ₹ 3,700 included in Creditors is not likely to be claimed .
Partners decided to record the revised values in the books. However, they do not want to disturb the Reserve. You are required to pass Journal entries, prepare Capital Accounts of Partners and the revised Balance Sheet.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	A’s Capital A/c	Dr.		4,000
	To B’s Capital A/c				4,000
	(Adjustment of General Reserve on change in profit sharing ratio)

Partners’ Capital Accounts
Dr.			Cr.
Particulars	A	B		Particulars	A	B
B’s Capital A/c	4,000	–		Balance b/d	2,40,000	1,20,000
(Adjustment of General Reserve)				Revaluation (Profit)	18,000	13,500
Balance c/d	2,54,000	1,37,500		A’s Capital A/c	–	4,000
				(Adjustment of General Reserve)
	2,58,000	1,37,500			2,58,000	1,37,500

Balance Sheet as on 01st April, 2019
Liabilities		Amount (₹)	Assets		Amount (₹)
Sunday Creditors (28,000 –3,700)		24,300	Cash		20,000
General Reserve		42,000	Sundry Debtors	1,20,000
Capital Account			Less: Provision for Doubtful Debts	(7,200)	1,12,800
A	2,54,000		Stock		1,90,000
B	1,37,500	3,91,500	Fixed Assets (1,50,000 – 15,000)		1,35,000
		4,57,800			4,57,800

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (A and B) = 4 : 3

New Ratio (A and B) = 2 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Adjustment of General Reserve

WN 3

Revaluation Account
Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Fixed Assets		15,000	Stock	50,000
Provision for Doubtful Debts (1,20,000 × 6%)		7,200	Creditors	3,700
Profit transferred to:
A’s Capital A/c	18,000
B’s Capital A/c	13,500	31,500
		53,700		53,700

Question 28:

X, Y and Z are partners in a firm sharing profits and losses as 5 : 4 : 3. Their Balance Sheet as at 31st March, 2019 was:


Liabilities		Amount (₹)	Assets	Amount (₹)
Sundry Creditors		40,000	Cash at Bank	40,000
Outstanding Expenses		15,000	Sundry Debtors	2,10,000
General Reserve		75,000	Stock	3,00,000
Capital A/cs:			Furniture	60,000
X	4,00,000		Plant and Machinery	4,20,000
Y	3,00,000
Z	2,00,000	9,00,000
		10,30,000		10,30,000

From 1st April, 2019, they agree to alter their profit-sharing ratio as 4 : 3 : 2. It is also decided that:
(a) Furniture be taken at 80% of its value.
(b) Stock be appreciated by 20%.
(c) Plant and Machinery be valued at ₹ 4,00,000.
(d) Outstanding Expenses be increased by ₹ 13,000.
Partners agreed that altered values are not to be recorded in the books and they also do not want to distribute the General Reserve.
You are required to pass a single Journal entry to give effect to the above. Also, prepare Balance Sheet of the new firm.

Answer:

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019	X's Capital A/c	Dr.		2,500
April 1	To Z's Capital A/c				2,500
	(Revaluation Profit and General Reserve adjusted on change in profit sharing ratio)

Balance Sheet as on 01st April, 2019
Liabilities		Amount (₹)	Assets	Amount (₹)
Sundry Creditors		40,000	Cash at Bank	40,000
Outstanding Expenses		15,000	Sundry Debtors	2,10,000
General Reserve		75,000	Stock	3,00,000
Capital Accounts:			Furniture	60,000
X	3,97,500		Plant and Machinery	4,20,000
Y	3,00,000
Z	2,02,500	9,00,000
		10,30,000		10,30,000

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 4 : 3

New Ratio (X, Y and Z) = 4 : 3 : 2

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Calculation of Profit or Loss on Revaluation

Particulars	Amount (₹)
Increase in Stock	60,000	(Cr.)
Decrease Furniture	(12,000)	(Dr.)
Decrease in Plant and Machinery	(20,000)	(Dr.)
Increase in Outstanding Expenses	(13,000)	(Dr.)
Profit on Revaluation	15,000	(Cr.)

WN 3 Adjustment of Profit on Revaluation and General Reserve

Amount for Adjustment = Profit on Revaluation + General Reserve
= 15,000 + 75,000 = Rs 90,000

WN 4

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Z's Capital A/c	2,500	–	–	Balance c/d	4,00,000	3,00,000	2,00,000
				X's Capital A/c	–	–	2,500
Balance c/d	3,97,500	3,00,000	2,02,500
	4,00,000	3,00,000	2,02,500		4,00,000	3,00,000	2,02,500

Question 29:

Balance Sheet of X and Y, who share profits and losses as 5 : 3, as at 1st April, 2019 is:


Liabilities	Amount (₹)	Assets	Amount (₹)
X's Capital	52,000	Goodwill	8,000
Y's Capital	54,000	Machinery	38,000
General Reserve	4,800	Furniture	15,000
Sundry Creditors	5,000	Sundry Debtors	33,000
Employees' Provident Fund	1,000	Stock	7,000
Workmen Compensation Reserve	10,000	Bank	25,000
		Advertisement Suspense A/c	800

	1,26,800		1,26,800

On the above date, they decided to change their profit-sharing ratio to 3 : 5 and agreed upon the following:
(a) Goodwill be valued on the basis of two years' purchase of the average profit of the last three years. Profits for the years ended 31st March, are: 2016-17 − ₹ 7,500; 2017-18 − ₹ 4,000; 2018-19 − ₹ 6,500.
(b) Machinery and Stock be revalued at ₹ 45,000 and ₹ 8,000 respectively.
(c) Claim on account of workmen compensation is ₹ 6,000.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

Answer:

Revaluation Account
Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Profit transferred to:			Machinery	7,000
X’s Capital A/c	5,000		Stock	1,000
Y’s Capital A/c	3,000	8,000
		8,000		8,000

Partners’ Capital Account
Dr.			Cr.
Particulars	X	Y	Particulars	X	Y
Advertisement Suspense A/c	500	300	Balance b/d	52,000	54,000
Goodwill A/c	5,000	3,000	General Reserve A/c	3,000	1,800
X’s Capital	–	3,000	WCF	2,500	1,500
(Adjustment of Goodwill)			Revaluation A/c (Profit)	5,000	3,000
			Y’s Capital A/c	3,000	–
Balance c/d	60,000	54,000	(Adjustment of Goodwill)

	65,500	60,300		65,500	60,300

Balance Sheet
as on April 01, 2019 (after Change in Profit Sharing Ratio)
Liabilities	Amount (₹)	Assets	Amount (₹)
X’s Capital	58,500	Machinery (38,000 + 7,000)	45,000
Z’s Capital	55,500	Furniture	15,000
Sundry Creditors	5,000	Sundry Debtors	33,000
Employees’ Provident Fund	1,000	Stock (7,000 + 1,000)	8,000
Workmen’s Compensation Reserve	6,000	Bank	25,000
	1,26,000		1,26,000

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X and Y) = 5 : 3

New Ratio (X and Y) = 3 : 5

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Calculation of New Goodwill

Goodwill = Average Profit × Number of Year′s Purchase = 6,000 × 2 = Rs 12,000

∴Goodwill = 6,000 × 2 = Rs 12,000

WN 3 Adjustment of Goodwill

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
	Workmen’s Compensation Reserve A/c	Dr.		10,000
	To Workmen’s Compensation Claim A/c				6,000
	To X’s Capital A/c				2,500
	To Y’s Capital A/c				1,500
	(Workmen’s compensation claim distributed among partners in their old ratio i.e. 5 : 3)

	X’s Capital A/c	Dr.		5,000
	Y’s Capital A/c	Dr.		3,000
	To Goodwill A/c				8,000
	(Goodwill written off among partners in their old ratio)

	X’s Capital A/c	Dr.		500
	Y’s Capital A/c	Dr.		300
	To Advertisement Suspense A/c				800
	(Advertisement Suspense written off among partners in their old ratio)

	General Reserve A/c	Dr.		4,800
	To X’s Capital A/c				3,000
	To Y’s Capital A/c				1,800
	(General Reserve distributed among partners in their old ratio)

	Revaluation A/c	Dr.		8,000
	To X’s Capital A/c				5,000
	To Y’s Capital A/c				3,000
	(Revaluation profit distributed among partners in their old ratio)

	Y’s Capital A/c	Dr.		3,000
	To X’s Capital A/c				3,000
	(Adjustment of goodwill made)

Question 30:

Ram, Mohan, Sohan and Hari were partners in a firm sharing profits in the ratio of 4 : 3 : 2 : 1. On 1st April, 2016, their Balance Sheet was as follows:

BALANCE SHEET OF RAM, MOHAN, SOHAN AND HARI as on 1st April, 2016
Liabilities		₹	Assets	₹
Capital A/cs:			Fixed Assets	9,00,000
Ram	4,00,000		Current Assets	5,20,000
Mohan	4,50,000
Sohan	2,50,000
Hari	2,00,000	13,00,000
Workmen Compensation Reserve		1,20,000



		14,20,000		14,20,000

From the above date, the partners decided to share the future profits in the ratio of 1 : 2 : 3 : 4. For this purpose the goodwill of the firm was valued at ₹ 1,80,000. The partners also agreed for the following:(a) The Claim for workmen compensation has been estimated at ₹ 1,50,000.
(b) Adjust the capitals of the partners according to the new profit-sharing ratio by opening Partners' Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm.

Answer:

Revaluation Account
Dr.		Cr.
Particulars	Amount (₹)	Particulars		Amount (₹)
Provision for Workmen Compensation Claim	30,000	Revaluation Loss
		Ram’s Capital A/c	12,000
		Mohan’s Capital A/c	9,000
		Sohan’s Capital A/c	6,000
		Hari’s Capital A/c	3,000	30,000

	30,000			30,000

Partners’ Capital Account
Dr.				Cr.
Particulars	Ram	Mohan	Sohan	Hari	Particulars	Ram	Mohan	Sohan	Hari
Revaluation A/c	12,000	9,000	6,000	3,000	Balance b/d	4,00,000	4,50,000	2,50,000	2,00,000
Ram’s Capital A/c			13,500	40,500	Sohan’s Capital A/c	13,500	4,500
Mohan’s Capital A/c			4,500	13,500	Hari’s Capital A/c	40,500	13,500
Current A/c’s	3,15,000	2,05,000			Current A/c’s			1,55,000	3,65,000
Balance c/d	1,27,000	2,54,000	3,81,000	5,08,000
	4,54,000	4,68,000	4,05,000	5,65,000		4,54,000	4,68,000	4,05,000	5,65,000

Balance Sheet
Liabilities		Amount (₹)	Assets		Amount (₹)
Capital A/c			Fixed Assets		9,00,000
Ram	1,27,000		Current Assets		5,20,000
Mohan	2,54,000		Current A/c
Sohan	3,81,000		Ram	3,15,000
Hari	5,08,000	12,70,000	Mohan	2,05,000	5,20,000
Current A/c
Sohan	1,55,000
Hari	3,65,000	5,20,000
Claim against WCF		1,50,000

		19,40,000			19,40,000

Working Notes

WN1: Calculation of Gaining/Sacrificing Ratio

$Old Ratio New Ratio 4 : 3 : 2 : 1 1 : 2 : 3 : 4 Sacrificing Ratio = Old Ratio - New Ratio Sacrificing Ratio of Ram = \frac{4}{10} - \frac{1}{10} = \frac{3}{10} (sacrificing) Sacrificing Ratio of Mohan = \frac{3}{10} - \frac{2}{10} = \frac{1}{10} (sacrificing) Sacrificing Ratio of Sohan = \frac{2}{10} - \frac{3}{10} = - \frac{1}{10} (gaining) Sacrificing Ratio of Hari = \frac{1}{10} - \frac{4}{10} = - \frac{3}{10} (gaining)$

(a) Sohan will compensate Ram and Mohan in the ratio 3 : 1

(b) Hari will compensate Ram and Mohan in the ratio of 3 : 1

Adjustment for Goodwill

Sohan’s Capital A/c	Dr.	18,000
Hari’s Capital A/c	Dr.	54,000
To Ram’s Capital A/c			54,000
To Mohan’s Capital A/c			18,000
(Sohan and Hari will compensate Ram and Mohan in their gaining ratio)

WN2: Calculation of Adjusted Capital

Ram = 4,54,000 – 12,000 = Rs 4,42,000

Mohan = 4,68,000 – 9,000 = Rs 4,59,000

Sohan = 2,50,000 – 24,000 = Rs 2,26,000

Hari = 2,00,000 – 57,000 = Rs 1,43,000

Total Combined Capital = 12,70,000

WN3: Calculation of New Capital
$Ram = 12, 70, 000 \times \frac{1}{10} = 1, 27, 000 Mohan = 12, 70, 000 \times \frac{2}{10} = 2, 54, 000 Sohan = 12, 70, 000 \times \frac{3}{10} = 3, 81, 000 Hari = 12, 70, 000 \times \frac{4}{10} = 5, 08, 000$

Question 31:

Suresh, Ramesh, Mahesh and Ganesh were partners in a firm sharing profits in the ratio of 2 : 2 : 3 : 3. On 1st April, 2016, their Balance Sheet was as follows:

BALANCE SHEET OF SURESH, RAMESH, MAHESH AND Ganesh *as on 1st April, 2016*
Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/cs:			Fixed Assets	6,00,000
Suresh	1,00,000		Current Assets	3,45,000
Ramesh	1,50,000
Mahesh	2,00,000
Ganesh	2,50,000	7,00,000
Sundry Creditors		1,70,000
Workmen Compensation Reserve		75,000


		9,45,000		9,45,000

From the above date, the partners decided to share the future profits equally. For this purpose the goodwill of the firm was valued at ₹ 90,000. It was also agreed that:
(a) Claim against Workmen Compensation Reserve will be estimated at ₹ 1,00,000 and fixed assets will be depreciated by 10%.
(b) The Capitals of the partners will be adjusted according to the new profit-sharing ratio. For this, necessary cash will be brought or paid by the partners as the case may be.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm.

Answer:

Revaluation Account
Dr.		Cr.
Particulars	Amount (₹)	Particulars		Amount (₹)
Depreciation on Fixed Assets A/c	60,000	Revaluation Loss
Provision for Claim against WCF	25,000	Suresh’s Capital A/c	17,000
		Ramesh’s Capital A/c	17,000
		Mahesh’s Capital A/c	25,500
		Ganesh’s Capital A/c	25,500	85,000

	85,000			85,000

Partners’ Capital Account
Dr.				Cr.
Particulars	Suresh	Ramesh	Mahesh	Ganesh	Particulars	Suresh	Ramesh	Mahesh	Ganesh
Revaluation A/c	17,000	17,000	25,500	25,500	Balance b/d	1,00,000	1,50,000	2,00,000	2,50,000
Mahesh's Capital A/c	2,250	2,250			Suresh’s Capital A/c			2,250	2,250
Ganesh's Capital A/c	2,250	2,250			Ramesh’s Capital A/c			2,250	2,250
Cash A/c			25,250	75,250	Cash A/c	75,250	25,250
Balance c/d	1,53,750	1,53,750	1,53,750	1,53,750
	1,75,250	1,75,250	2,04,500	2,54,500		1,75,250	1,75,250	2,04,500	2,54,500

Balance Sheet
Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/c			Fixed Assets (Less depreciation)	5,40,000
Suresh	1,53,750		Current Assets	3,45,000
Ramesh	1,53,750
Mahesh	1,53,750
Ganesh	1,53,750	6,15,000
Claim against WCF		1,00,000
Sundry Creditors		1,70,000
		8,85,000		8,85,000

Working Notes
WN1:
Calculation of Gaining/Sacrificing Ratio

Adjustment for Goodwill

Suresh’s Capital A/c	Dr.	4,500
Ramesh’s Capital A/c	Dr.	4,500
To Mahesh’s Capital A/c			4,500
To Ganesh’s Capital A/c			4,500
(Gaining partners compensate sacrificing partners)

WN2: Calculation of Adjusted Capital
Suresh = 1,00,000 – 21,500 = Rs 78,500
Ramesh = 1,50,000 – 21,500 = Rs 1,28,500
Mahesh = 2,04,500 – 25,500 = Rs 1,79,000
Ganesh = 2,54,500 – 25,500 = Rs 2,29,000
Total Combined Capital = 6,15,000

WN3: Calculation of New Capital
$Suresh = 6, 15, 000 \times \frac{1}{4} = 1, 53, 750 Ramesh = 6, 15, 000 \times \frac{1}{4} = 1, 53, 750 Mahesh = 6, 15, 000 \times \frac{1}{4} = 1, 53, 750 Ganesh = 6, 15, 000 \times \frac{1}{4} = 1, 53, 750$

Question 32:

Following is the Balance Sheet of A and B, who shared Profits and Losses in the ratio of 2 : 1, as at 1st April, 2019:

BALANCE SHEET OF A AND B as on 1st April, 2019
Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/cs:			Land ad Building	2,90,000
A	3,00,000		Furniture	80,000
B	2,00,000	5,00,000	Stock	2,40,000
Reserve		1,50,000	Debtors	1,50,000
Creditors		2,00,000	Bank	60,000
			Cash	30,000

		8,50,000		8,50,000

On the above date, the partners changed their profit-sharing ratio to 3 : 2. For this purpose, the goodwill of the firm was valued at ₹ 3,00,000. The partners also agreed for the following:
(a) The value of Land and Building will be ₹ 5,00,000;
(b) Reserve is to be maintained at ₹ 3,00,000.
(c) The total capital of the partners in the new firm will be ₹ 6,00,000, which will be shared by the partners in their new profit-sharing ratio.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm.

Answer:

Revaluation Account
Dr.			Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Revaluation Profit			Land and Building	2,10,000
A’s Capital A/c	1,40,000
B’s Capital A/c	70,000	2,10,000

		2,10,000		2,10,000

Partners’ Capital Accounts
Particulars	A	B	Particulars	A	B
Reserve	1,80,000	1,20,000	Balance b/d	3,00,000	2,00,000
Cash A/c (bal.fig.)	20,000		Reserve	1,00,000	50,000
A’s Capital		20,000	B’s Capital A/c	20,000
Balance c/d	3,60,000	2,40,000	Revaluation A/c	1,40,000	70,000
			Cash A/c (bal.fig.)		60,000
	5,60,000	3,80,000		5,60,000	3,80,000

Balance Sheet
Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/c			Land and Building	5,00,000
A	3,60,000		Furniture	80,000
B	2,40,000	6,00,000	Stock	2,40,000
Reserve		3,00,000	Debtors	1,50,000
Creditors		2,00,000	Bank	60,000
			Cash (30,000 + 60,000 – 20,000)	70,000
		11,00,000		11,00,000

Working Notes

WN1: Calculation of New Capital

$A = 6, 00, 000 \times \frac{3}{5} = 3, 60, 000 B = 6, 00, 000 \times \frac{2}{5} = 2, 40, 000$

WN2: Calculation of Gaining/Sacrificing Ratio& Adjustment for Goodwill

$Old Ratio New Ratio 2 : 1 3 : 2 Sacrificing Ratio = Old Ratio - New Ratio Sacrificing Ratio of A = \frac{2}{3} - \frac{3}{5} = \frac{1}{15} (sacrificing) Sacrificing Ratio of B = \frac{1}{3} - \frac{2}{5} = - \frac{1}{15} (gaining) A' s Sacrifice = 3, 00, 000 \times \frac{1}{15} = 20, 000 B' s Gain = 3, 00, 000 \times \frac{1}{15} = 20, 000$

Adjustment for Goodwill

B’s Capital A/c	Dr.	20,000
To A’s Capital A/c			20,000
(B will compensate A to the extent of his gain)

Double Entry Book Keeping Ts Grewal Vol. I 2019 for Class 12 Commerce Accountancy Chapter 4 - Change In Profit Sharing Ratio Among The Existing Partners

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