A,B and C were partners sharing in the ratio 5:3:2.As on 1st Jan 2015 they decided to share the profits equally. on that date the goodwill of the firm was valued at Rs.40,000. There was a debit balance in the profit and loss account for Rs.15000 and the general reserve had a balance of Rs.30,000.Show the adjustments of these by means of a single entry.

Dear Student,

Old profit sharing Ratio is 5:3:2
New profit sharing Ratio is 1:1:1

So, Sacrificing Ratio/(Gaining Ratio) of 

A is 510-13=530
B is 310-13=-130\
C is 210-13=-430
Thus A sacrificed whereas B & C gains 1:4 on change of Profit sharing Ratio.

Now Goodwill of the firm as on that date was valued at Rs 40,000

Share of A's Goodwill to be compensated by B & C is 40,000×510=20,000
Available profit = -15,000+30,000 = 15,000

Thus total compensation to A by B & C is 20,000+15,000 = 35,000

Date Particulars L.F. Debit
 1 Jan 2015 B's Capital A/c (1/5) Dr.     7,000  
  C's Capital A/c (4/5)      28,000  
    To A's Capital  A/c        35,000
  (Being Adjustment entry passed on change of profit sharing Ratio)        


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