Ts grewal practical problems of Change in Profit Sharing Ratio (2023-2024)

 Change in Profit Sharing Ratio Ts grewal solution volume-1(2023-2024)

Question 1:

Om and Shyam are sharing profits and losses equally. With effect from 1st April, 2022, 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 (Om and Shyam) = 1 : 1

New Ratio (Om and Shyam) = 4 : 3

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

      Om’s share = ½ - 4/7 = 7-8/14= -1/14 (Gain)  

      Shyam’s share = ½ - 3/7 = 7-6/14= 1/14  (sacrifice)

∴ Om’s Gain = 1/14

Shyam’s Sacrifice = 1/14

Question 2:

Ashok, Bhim and Chetan are sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2022, 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 (Ashok, Bhim and Chetan) = 5 : 3 : 2

New Ratio (Ashok, Bhim and Chetan) = 5 : 2 : 3

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

      Ashok’s share =5/10 – 5/10 = nil

      Bhim’s share =3/10 – 2/10 = 1/10 (sacrifice)

      Chetan’s share =2/10 – 3/10 = -1/10 (Gain)

∴ Chetan’s Gain = 1/10

Bhim’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, 2022, 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

 X’s share =5/10 – 1/3 =  15-10/30= 5/30

Y’s share =3/10 – 1/3 =    9-10/30= -1/30

Z’s share =2/10 – 1/3 =     6-10/30= -4/30 

∴ 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:

Calculation of New Profit Sharing Ratio

 

Case 1:

A:B:C=5:4:1(Old Ratio)

C acquires 15th from A 

A's sacrifice = 1/5 

C's gain = 1/5

A=5/10−1/5= 5−2/10=3/10

B=4/10

C=1/10+1/5=1+2/10 =3/10

A:B:C=3:4:3

 

Case 2:

A:B:C=5:4:1(Old Ratio)

C acquires 1/5th share equally from A and B=1/5×1/2=1/10

A's sacrifice = 110 B's sacrifice = 1/10

C's gain = 1/5

A=5/10−1/10 =5−1/10=4/10

B=4/10−1/10=4−1/10=3/10

C=1/10+1/5=1+2/10=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=5/10−1/3=15−10/30=5/30(Sacrifice)

B=4/10−1/3=12−10/30=2/30(Sacrifice)

C=1/10−1/3=3−10/30=−7/30(Gain)

 

Case 4:

A:B:C=5:4:1(Old Ratio)

A's sacrifice to C=5/10×1/10=1/20

B's sacrifice to C=4/10×1/2=4/20

C's gain=1/20+4/20=5/20

A=5/10−1/20 =10−1/20=9/20

B=4/10−4/20=8−4/20=4/20

C=1/10+5/20=2+5/20=7/20

A:B:C=9:4:7

Question 5:

Asha, Nisha and Disha shared profits and losses in the ratio of 3 : 2 : 1 respectively. With effect from 1st April, 2022, they agreed to share profits equally. The goodwill of the firm was valued at  ` 18,000. Pass necessary Journal entries when:

 

Answer:

 

Calculation of Gain/Sacrifice made by the partners:

Particulars	Asha	Nisha	Disha
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)

 

 

Journal
Date	Particular		L.F.	Debit ( `)	Credit ( `)
2022 April 1	Disha’s Capital A/c (18,000×1/6)	Dr.		3,000
	To Asha’s Capital A/c (18,000×1/6)				3,000
	(Being Adjustment for goodwill)

Question 6:

X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. From 1st April, 2022, 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	2018	2019	2020	2021	2022
Profits ( `)	70,000	75,000	55,000	35,000	10,000 (Loss)

You are required to calculate goodwill and pass journal entry.

 

Answer:

Journal
Date	Particulars		L.F.	Debit `	Credit `
2022 April 1	Y’sCapitalA/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

X’s share= 5/10-1/3= 15-10/30= 5/30 (Sacrifice)

Y’s share= 3/10-1/3= 9-10/30= -1/30 (gain)

Z’s share= 1/10-1/3= 6-10/30= -4/30 (gain)

WN 2 Calculation of Goodwill

Goodwill=  average × purchase years

Average profit= 70,000+75,000+55,000+35,000-10,000/5=45,000

Goodwill= 45,000×2=90,000

WN 3 Adjustment of Goodwill

Amount to be Credited to X’s capital= 90,000×5/30 = 15,000 (sacrifice)

Amount to be Credited to Y’s capital= 90,000×1/30 = 3,000 (Gain)

Amount to be Credited to Z’s capital= 90,000×4/30 = 12,000 (Gain)

Question 7:

Mandeep, Vinod and Abbas are partners sharing profits and losses in the ratio of 3 : 2 : 1. From 1st April, 2022 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, 2018 −  ` 1,00,000; 2019 −  ` 1,50,000; 2021 −  ` 2,00,000; 2022 −  ` 2,00,000.
Loss − Year ended 31st March, 2020 −  ` 50,000.
Pass the Journal entry showing the working.

Answer:

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
2022
April 1	Abbas’s Capital A/c	Dr.		60,000
	To Mandeep’s Capital A/c				60,000
	(Being Adjustment entry made for change in ratio)

 

Working Notes:

WN1: Calculation of Sacrifice or Gain

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=36−13=3−26=1/6 (Sacrifice)

Vinod's share=26−13=2−26=0

Abbas's share=16−13=1−2/6=−1/6(Gain)

WN2: Valuation of Goodwill

Goodwill=Average Profit×No. of years' Purchase               

=1,20,000×3= ` 3,60,000

Average Profit=Total Profits of past years given/Number of years                        

=1,00,000+1,50,000+2,00,000+2,00,000−50,000÷5= ` 1,20,000

WN3: Adjustment of  Goodwill

Amount debited to Abbas's Capital A/c=3,60,000×1÷ 6 = ` 60,000 (share of gain)

Amount credited to Mandeep's Capital A/c=3,60,000×1÷ 6= ` 60,000 (share of sacrifice)

Question 8:

A and B are partners in a firm sharing profits in the ratio of 2 : 1. They decided with effect from 1st April, 2021, 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, 2022 of  ` 90,000 was distributed in the old ratio.
The profits for the year ended 31st March, 2020 and 2021 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, 2022 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  ( `)	Credit  ( `)
2022 April 1	A’s Capital A/c	Dr.		6,000
	To B’s Capital A/c				6,000
	(Being 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
	(Being 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

A’s share= 2/3-3/5= 10-9/15= 1/15 (Sacrifice)

A’s share= 2/3-3/5= 5-6/15= -1/15 (gain)

WN 2 Adjustment of Profit for 2016-17

Profit to be debited  to A’c capital=90,000×1/15=6,000

Profit to be credited  to B’c capital=90,000×1/15=6,000

WN 3 Calculation of New Goodwill

Goodwill=Profit of 2020 + Profit of 2021

=60,000+75,000= ` 1,35,000

WN 4 Adjustment of Goodwill

Goodwill to be debited  to A’c capital=1,35,000×1/15=9,000 (share of sacrifice)

Goodwill to be credited  to B’c capital=1,35,000×1/15=9,000 (share of Gain)

Question 9:

Nitya and Anand are partners in a firm sharing profits and losses in the ratio of 3 : 2. With effect from 1st April, 2022, 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  ( `)	Credit  ( `)
2022 April 1	Profit & Loss A/c	Dr.		1,50,000
	To Nitya’s Capital A/c				90,000
	To Anand’s Capital A/c				60,000
	(Being Adjustment of balance in P&L A/c in old ratio)

Working Notes:

WN1 Calculation of Share of Profit and Loss A/c

Nisha's share=1,50,000×3÷5=90,000

Anand's share=1,50,000×2÷5=60,000
 

Question 10:

Om and Shiv 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, 2022. 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  ( `)	Credit  ( `)
2022
April 1	Om’s Capital A/c	Dr.		80,000
	Shiv’s Capital A/c	Dr.		20,000
	To Profit & Loss  A/c				1,00,000
	(Being Profit & Loss  distributed)

Question 11:

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  ( `)	Credit  ( `)
	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
	(Being 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 12:

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  ( `)	Credit  ( `)
	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
	(Being 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=40,000×5/10=20,000

Y's share=40,000×3/10=12,000

Z's share=40,000×2/10=8,000

Question 13:

Ashok, Bhim and Chetan 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, 2022. Workmen Compensation Reserve appears at  ` 1,20,000 in the Balance Sheet as at 31st March, 2022 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  ( `)	Credit  ( `)
2022 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
	(Being Provision created and shortfall charged to Revaluation A/c)
	Ashok’s Capital A/c	Dr.		15,000
	Bhim’s Capital A/c	Dr.		9,000
	Chetan’s Capital A/c	Dr.		6,000
	To Revaluation A/c				30,000
	(Being Loss on revaluation transferred to Partners’ Capital A/c)

 

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 '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  ( `)	Credit  ( `)
	Investment Fluctuation Reserve A/c	Dr.		5,000
	To Investments A/c				5,000
	(Being 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
	(Being 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=15,000×5/10=7,500

B's share=15,000×3/10=4,500

C's share=15,000×2/10=3,000

Question 15:

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, 2022. The extract of their Balance Sheet as at 31st March, 2022 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  ( `)	Credit  ( `)
2022
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
	(Being 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
	(Being 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
	(Being Investment Fluctuation Reserve distributed)
	Investments A/c	Dr.		24,000
	To Revaluation A/c				24,000
	(Being 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
	(Being 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
	(Being 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
	(Being Loss on revaluation transferred to Partners’ Capital A/c)

 

Question 16:

Amar and Akhar are partners sharing profits in the ratio of 2 : 1. On 31st March, 2022, 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  ( `)	Credit  ( `)
2022 April 1	General Reserve A/c	Dr.		60,000
	To Amar’s Capital A/c				40,000
	To Akhar’s Capital A/c				20,000
	(Being Adjustment of balance in General Reserve A/c in old ratio)

Working Notes:

WN1 Calculation of Share of General Reserve

Amar's share=60,000×2/3=40,000

Akhar's share=60,000×1/3=20,000
 

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

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
2022 April 1	Akhar’s Capital A/c	Dr.		4,000
	To Amar’s Capital A/c				4,000
	(Being 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

Amar=2/3-3/5=1/15(sacrifice)

Akhar=1/3-2/5=-1/15(gain)

WN2 Calculation of Compensation by Akhar to Amar

Amount to be compensated=60,000×1/15=4,000
 

Question 17: Mita, Gopal and Farhan were partners sharing profits and losses in the ratio 3:2:1. On 31st March, 2018. they decided to change the profit-sharing ratio to 5: 3:2. On this date, the Balance Sheet showed deferred advertisement expenditure `30,000 and contingency reserve 9,000.

Goodwill was valued at `4,80,000. Pass the necessary Journal entries for the above transactions in the books of the firm on its reconstitution.

(CBSE 2019)

Answer;

Journal
Particulars		L.F.	Debit  ( `)	Credit  ( `)
Mitha’s Capital A/c Gopal’s Capital A/c Farhan’s Capital A/c    To Advertisement expenses a/c (Being Advertisement expenses  A/c written off  in old ratio)	Dr. Dr. Dr.		15,000 10,000 5,000         9,000             16,000	30,000           4,500 3,000 1,500       16,000
Contingency reserve a/c	Dr.
To   Mitha’s Capital A/c   To Gopal’s Capital A/c   To  Farhan’s Capital A/c (Being Contingency reserve A/c distributed in old ratio)
Farhan’s Capital A/c   To Gopal’s Capital A/c (Being capital of gainer and sacrificer’s capital a/c adjusted with their share of goodwill in gaining and sacrificing ratio)	Dr.

 

WN-1

	Mita	Gopal	Farhan
Old ratio	3	:       2	:     1
New ratio	5	:       3	:      2

Mita = 3/6-5/10=30-30/60=0/60

Gopal =2/6-3/10=20-18/60=2/60 (Scrifice)

Farhan=1/6-2/10=10-12/60=-2/60(Gain)

Goodwill of the firm=-4,80,000

Share of Gapal =4,80,000×2/60=`16,000

Share of Farhan =4,80,000×2/60=`16,000

WN-2

Adjustment of deferred advertisement expenditure and contingency reserve

Advertisement expenditure to be written off / debited (in old ratio 3;2;1)

Mita = 30,000×3/6 =15,000

Gopal = 30,000×2/6 =10,000

Farhan = 30,000×1/6 = 5,000

Contingency reserve to be Credited (in old ratio 3;2;1)

Mita = 9,000×3/6 =4,500

Gopal = 9,000×2/6 =3,000

Farhan = 9,000×1/6 = 1,500

 

Question 18:

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		( `)	Assets	( `)
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 ( `)	Credit ( `)
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 19:

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, 2022. 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  ( `)	Credit  ( `)
2022 April 1	Z’s Capital A/c	Dr.		5,400
	To X’s Capital A/c				5,400
	(Being 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

Net amount to be adjusted = General reserve+Profit and loss A/C  (credit balance)- advertisement suspense a/c

=6000+24000-12000

=18,000

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

X’s share= 5/10-2/10= 3/10 (Sacrifice)

Y’s share= 3/10-3/1=NIL

Z’s share= 2/10-5/10= -3/10 (gain)

 

Question 20:

Ashish, Aakash and Amit are partners sharing profits and losses equally. The Balance Sheet as at 31st March, 2022 was as follows:

Liabilities		( `)	Assets	( `)
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, 2022. 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  ( `)	Credit  ( `)
2022
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
	(Being 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
	(Being 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
	(Being Assets revalued)
April 1	Land & Building A/c	Dr.		62,000
	To Revaluation A/c				62,000
	(Being 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
	(Being Profit made)

 

Question 21:

 Karim, Rehman and Navel are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2022 stood as follows:

Liabilities		( `)	Assets	( `)
Capital A/cs:			Land and Building	3,50,000
Karim	2,50,000		Machinery	2,40,000
Rehman	2,50,000		Computers	70,000
Navel	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, 2022. 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 2022 −  ` 50,000 (Loss); 2021 −  ` 2,50,000 and 2020−  ` 2,50,000.
(vii) Navel 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  ( `)	Credit  ( `)
2022
April 1	General Reserve A/c	Dr.		60,000
	To Karim’s Capital A/c				30,000
	To Rehman’s Capital A/c				18,000
	To Navel’s Capital A/c				12,000
	(Being Reserve distributed)
	Karim’s Capital A/c	Dr		2,500
	Rehman’s Capital A/c	Dr.		1,500
	Navel’s Capital A/c	Dr.		1,000
	To Advertisement Suspense A/c				5,000
	(Being 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
	(Being 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
	(Being 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
	(Being Assets revalued)
	Revaluation A/c			17,000
	To Karim’s Capital A/c				8,500
	To Rehman’s Capital A/c				5,100
	To Navel’s Capital A/c				3,400
	(Being Profit on revaluation transferred to Partners’ Capital A/c)
	Rehman’s Capital A/c	Dr.		10,000
	Navel’s Capital A/c	Dr.		40,000
	To Karim’s Capital A/c				50,000
	(Being Goodwill adjusted)

 

Revaluation A/c
Dr.								Cr.
Particulars				( `)	Particulars	( `)
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:
Karim’s Capital A/c		8,500
Rehman’s Capital A/c		5,100
Navel’s Capital A/c		3,400		17,000
				42,000		42,000

 

Working Notes:

WN1: Calculation of sacrifice or gain

Karim:Rehman: Navel=5:3:2(Old Ratio)

Karim:Rehman: Navel =1:1:1(New Ratio)

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

Karim's share=5/10−1/3=15−10/30=5/30(Sacrifice)

Rehman's share=3/10−1/3=9−10/30=−1/30(Gain)

Navel 's share=2/10−1/3=6−10/30=−4/30(Gain)

WN2: Valuation of Goodwill

Goodwill=Average Profit×No. of years' Purchase               

   =1,50,000×2= ` 3,00,000

WN3: Adjustment of Goodwill
Amount credited to Karim's Capital A/c=3,00,000×5/30= ` 50,000

Amount debited to Rehman's Capital A/c=3,00,000×1/30= ` 10,000

Amount debited to Navel's Capital A/c=3,00,000×4/30= ` 40,000

Question 22: Hari, Kunal and Uma are partners in a firm sharing profits and losses in the ratio of 5 :3: 2. From 1st April, 2018 they decided to share future profits and losses in the ratio of 2:5:3.Their Balance Sheet showed a balance of 75,000 in the Profit and Loss Account and a balance of `15,000 in Investment Fluctuation Fund. For this purpose, it was agreed that:

(i) Goodwill of the firm was valued at `3,00,000.

(ii) That investments (having a book value of R 50,000) were valued at `35,000.

(iii) That stock having a book value of `50,000 be depreciated by 109%.

Pass the necessary Journal entries for the above in the books of the firm. (CBSE 2019)

 

Answer;

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
2022	Kunal’s Capital A/c	Dr		60,000 30,000	90,000
	Uma’s Capital A/c	Dr.
	To Hari’s Capital A/c
	(Being Goodwill adjusted)
				15,000	15,000
	Investment Fluctuation Reserve A/c	Dr.
	To Investment A/c
	(Being decrease in the value of investment, adjusted in Investment Fluctuation Reserve)
	Revaluation  A/c	Dr.		5,000
	To Stock A/c				5,000
	(Being decrease in the value of Stock debited in revaluation a/c)
	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
	(Being Assets revalued)
	Profit and loss a/c	Dr.		75,000
	To Hari’s Capital A/c				37,500
	To Kunal’s Capital A/c				22,100
	To Uma’s Capital A/c				15,000
	(Being Profit on revaluation transferred to Partners’ Capital A/c)
	Hari’s Capital A/c	Dr.		2,500
	Kunal’s Capital A/c	Dr.		1,500
	Uma’s Capital A/c	Dr.		1,000
	To Revaluation A/c				5,000
	(Being loss of revaluation a/c is debited to partners’ capital a/c )

Working notes;

 Old ratio  = Hari : Kunal : Uma = 5:3:2

New ratio  = Hari : Kunal : Uma = 2:5:3

Sacrificing ratio = Old ratio-new ratio

Hari= 5/10-2/10=5-2/10=3/10 (Sacrifice)

Kunal= 3/10-5/10=3-5/10= -2/10 (gain)

Uma= 2/10-3/10=2-3/10= -1/10 (gain)

Treatment of goodwill

Goodwill of the firm 3,00,000

Share of Hari= 3,00000×3/10 =90,000

Share of Kunal= 3,00,000×2/10 =60,000

Share of Uma= 3,00,000 ×1/10 =30,000

Question 23:

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, 2022 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  ( `)	Credit  ( `)
2022
April 1	A’s Capital A/c (30,000×110=3,000)	Dr.		3,000
	To B’s Capital A/c				3,000
	(Being Adjustment entry made for change in ratio)

 

Working Notes:

WN1: Calculation of Sacrifice or Gain

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=2/5−5/10=4−5/10=−1/10(Gain)

B's share=2/5−3/10=4−3/10=1/10(Sacrifice)

C's share=1/5−2/10=2−2/10=0

WN2: Calculation of Profit or Loss on Revaluation

Revaluation A/c
Dr.					Cr.
Particulars		( `)	Particulars	( `)
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 24: 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		( `)	Assets	( `)
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		( `)	Particulars	( `)
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		( `)	Assets		( `)
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

 

A's share=3/6−1/3 = 1/6 (Sacrifice)

B's share=2/6−1/3 =  Nil

C's share=1/6−1/3 = -1/6 (Gain)

C will compensate by passing an entry

                           

C’s capital a/c          To A’s capital a/c

Dr.

25,000

25,000

 

Question 25:

Balance Sheet of X and Y, who share profits and losses as 5 : 3, as at 1st April, 2022 is:

Liabilities	( `)	Assets	( `)
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: 2020 −  ` 7,500; 2021 −  ` 4,000; 2022 −  ` 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		( `)	Particulars	( `)
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, 2022 (after Change in Profit Sharing Ratio)
Liabilities	( `)	Assets	( `)
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

X's share=5/8−3/8=2/8 (Sacrifice)

Y's share=3/8−5/8=−2/8 (Gain)

 

WN 2 Calculation of New Goodwill

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

Average profit= 7,500+4,000+6,500/3=6,000

∴Goodwill = 6,000 × 2 =  ` 12,000

WN 3 Adjustment of Goodwill

Amount to be debited to X’s capital=12,000×2/8 =3,000

Amount to be debited to Y’s capital=12,000×2/8 =3,000

 

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
	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
	(Being 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
	(Being 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
	(Being 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
	(Being 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
	(Being 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
	(Being Adjustment of goodwill made)

Question 26:

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	( `)	Particulars		( `)
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		( `)	Assets		( `)
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  4:3:2:1 

New Ratio 1:2:3:4

Sacrificing Ratio=Old Ratio-New Ratio

Sacrificing Ratio of Ram=4/10-1/10=3/10(sacrificing)

Sacrificing Ratio of Mohan=3/10-2/10=1/10(sacrificing)

gaining Ratio of Sohan=2/10-3/10=-1/10(gaining)

gaining Ratio of Hari=1/10-4/10=-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
(Being Sohan and Hari will compensate Ram and Mohan in their gaining ratio)

 

WN2: Calculation of Adjusted Capital

Ram = 4,54,000 – 12,000 =  ` 4,42,000

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

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

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

Total Combined Capital = 12,70,000

WN3: Calculation of New Capital

Ram=12,70,000×1/10=1,27,000

Mohan=12,70,000×2/10=2,54,000

Sohan=12,70,000×3/10=3,81,000

Hari=12,70,000×4/10=5,08,000

Question 27:

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		( `)	Assets	( `)
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	( `)	Particulars		( `)
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		( `)	Assets	( `)
Capital A/c			Fixed Assets (Less depreciation)	5,40,000
Suresh's Capital A/c	1,53,750		Current Assets	3,45,000
Ramesh's Capital A/c	1,53,750
Mahesh's Capital A/c	1,53,750
Ganesh's Capital A/c	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 =  ` 78,500
Ramesh = 1,50,000 – 21,500 =  ` 1,28,500
Mahesh = 2,04,500 – 25,500 =  ` 1,79,000
Ganesh = 2,54,500 – 25,500 =  ` 2,29,000
Total Combined Capital = 6,15,000

WN3: Calculation of New Capital
Suresh=6,15,000×1/4=1,53,750

Ramesh=6,15,000×1/4=1,53,750

Mahesh=6,15,000×1/4=1,53,750

Ganesh=6,15,000×1/4=1,53,750