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#### Page No 3.32:

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

#### Page No 3.32:

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

#### Page No 3.32:

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.

#### Page No 3.33:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs C’s Capital A/c Dr. 3,000 To A’s Capital A/c 3,000 (Adjustment of goodwill made on change in profit sharing ratio)

Working Notes:

Old Ratio (A, B and C) = 3 : 2 : 1

New Ratio (A, B and C) = 1 : 1 : 1

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

Goodwill of the firm = Rs 18,000

A will receive for goodwill =

C will give for goodwill =

#### Page No 3.33:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs 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

#### Page No 3.33:

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

WN2: Valuation of Goodwill

#### Page No 3.33:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) Sumit’s Capital A/c Dr. 50,000 Amit’s Capital A/c Dr. 50,000 To Gunit’s Capital A/c 1,00,000 (Adjustment entry made for change in ratio)

Working Notes:

WN1: Calculation of Sacrifice or Gain

#### Page No 3.33:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs 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) Y’s Capital A/c Dr. 1,000 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

#### Page No 3.33:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs A’s Capital A/c Dr. 6,000 To B’s Capital A/c 6,000 (Adjustment of profit for 2016-17 on change in profit sharing ratio) 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

WN 4

#### Page No 3.33:

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

#### Page No 3.34:

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

#### Page No 3.34:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs 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.

(i) & (ii)

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

 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

#### Page No 3.34:

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

 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

#### Page No 3.34:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) (i) 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) (ii) 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) (iii) 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) (iv) 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) (v) 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)

#### Page No 3.35:

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

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

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

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

WN2 Calculation of Compensation by Y to X

#### Page No 3.35:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs Y’s Capital A/c Dr. 30,000 To X’s Capital A/c 30,000 (Adjustment mode for goodwill and General Reserve)

Working Notes:

WN 1 Calculation of Goodwill

WN 2 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X and Y) = 2 : 3

New Ratio (X and Y) = 1 : 2

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

WN 4 Adjustment of General Reserve

WN 5 Net Adjustment of Goodwill and General Reserve

 Particulars X Y Adjustment of Goodwill 22,667 (Cr.) 22,667 (Dr.) Adjustment of General Reserve 7,333 (Cr.) 7,333 (Dr.) Net Amount 30,000 (Cr.) 30,000 (Dr.)

#### Page No 3.35:

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

#### Page No 3.35:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) 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) 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) 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) Land & Building A/c Dr. 62,000 To Revaluation A/c 62,000 (Assets revalued) 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)

#### Page No 3.36:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) Workmen Compensation Reserve A/c Dr. 50,000 To Provision for Workmen Compensation Claim A/c 20,000 To P’s Capital A/c 12,000 To Q’s Capital A/c 12,000 To R’s Capital A/c 6,000 (Workmen Compensation Reserve distributed) Land & Building A/c Dr. 15,000 Stock A/c Dr. 10,000 Outstanding expenses A/c Dr. 5,000 To Revaluation A/c 30,000 (Assets revalued) Revaluation A/c Dr. 20,000 To Machinery A/c 10,000 To Provision for Doubtful Debts A/c 5,000 To Bank A/c 5,000 (Assets revalued) Revaluation A/c Dr. 10,000 To P’s Capital A/c 4,000 To Q’s Capital A/c 4,000 To R’s Capital A/c 2,000 (Profit on revaluation transferred to Partners’ Capital A/c)

 Revaluation A/c Dr. Cr. Particulars Amount Rs Particulars Amount Rs Machinery A/c 10,000 Land & Building A/c 15,000 Provision for Doubtful Debts A/c 5,000 Stock A/c 10,000 Bank A/c (Auditors Fees) 5,000 Outstanding Expenses A/c 5,000 Profit transferred to: P’s Capital A/c 4,000 Q’s Capital A/c 4,000 R’s Capital A/c 2,000 10,000 65,000 65,000

#### Question 24:

A, B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2 . Their Balance Sheet as at 31st March, 2017 stood as follows:

 Liabilities ₹ Assets ₹ 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 Advertisement Suspense 5,000 8,80,000 8,80,000

They decided to share profits equally w.e.f. 1st April, 2017. 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 2016-17$—$₹ 50,000 (Loss); 2015-16$—$₹2,50,000 and 2014-15$—$₹ 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.

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

WN2: Valuation of Goodwill

#### Page No 3.37:

 Journal Date Particulars L.F. Debit Amount (Rs) Credit Amount (Rs) A’s Capital A/c $\left(30,000×\frac{1}{10}=3,000\right)$ 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

WN2: Calculation of Profit or Loss on Revaluation

 Revaluation A/c Dr. Cr. Particulars Amount Rs Particulars Amount Rs 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

#### Page No 3.37:

 Journal Date Particulars L.F. Debit Amount Rs Credit Amount Rs 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 (after change in Profit Sharing Ratio) Liabilities Amount (Rs) Assets Amount (Rs) 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 27:

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.