Double Entry Book Keeping Ts Grewal Vol I 2018 for Class 12 Commerce Accountancy Chapter 3 - 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, 2018, they agree to share profits in the ratio of 4 : 3. Calculate individual partner's gain or sacrifice due to the change in ration.

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, 2018, 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, 2018, 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, 2018, they agreed to share profits equally. The goodwill of the firm was valued at ₹18,000. Pass necessary Journal entries when: (a) Goodwill Account is not opened; and (b) Goodwill Account is opened.

Answer:

Cas (i) When Goodwill Account is not opened

Journal
Date 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
April 1	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 =

Cas (ii) When Goodwill Account is opened

Journal
Date 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Goodwill A/c	Dr.		18,000
April 1	To A’s Capital A/c To B’s Capital A/c To C’s Capital A/c				9,000 6,000 3,000
April 1	(Being goodwill account opened) A's Capital A/c Dr. B's Capital A/c Dr. C's Capital A/c Dr. To Goodwill A/c (Being goodwill written off in 3:2:1)			9,000 6,000 3,000	18,000

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, 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 shall be valued at three years' purchase of the average profit of last five years . The profits and losses of the past five years are:

Profit $—$ Year ended 31st March, 2014 $—$ ₹ 1,00,000; 2015 $—$ ₹ 1,50,000; 2017 $—$ ₹ 2,00,000; 2018 $—$ ₹ 2,00,000;
Loss $—$ Year ended 31st March, 2016 $—$ ₹ 50,000.
Pass the journal entries showing the working.

Answer:

Journal
Date 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

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, 2018. 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 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
(i)	X’s Capital A/c	Dr.		6,000
April 1	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)

(ii)	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, 2017, that they would share profits in the ratio of 3 : 2 . But, this decision was taken after the profit for the year 2017-18 amounting to ₹ 90,000 was distributed in the old ratio.
Value of firm's goodwill was estimated on the basis of aggregate of two years' profits preceding the date decision became effective .
The profits for 2015-16 and 2016-17 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, 2018 stood, at ₹ 1,50,000 for A and ₹ 90,000 for B.
Pass necessary journal entries and prepare Capital Accounts.

Answer:

Journal
Date 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
April 1	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)

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, 2018, they decided to share profits equally. Goodwill appeared in the books at ₹ 25,000 . As on 1st April, 2018, 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 (Rs)	Credit Amount (Rs)
	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, 2018, 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 int he Profit and Loss Account immediately before the change in the profit-sharing ratio.

Answer:

Journal
Date 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
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,2018 . 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 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

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 decided to share future profits and losses in the ratio of 2 : 3 : 5 with effect from 1st April, 2018. They also decided to record the effect of the following accumulated profits,losses and reserves without affecting their book values by passing a single entry .

	Book Value(₹)
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 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
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 (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.

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 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 . with effect from 1st April, 2018. Workmen Compensation Reserve appears at ₹ 1,20,000 in the Balance Sheet as at 31st March, 2018 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 (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.

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, 2018. The extract of their Balance Sheet as at 31st March, 2018 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 given as ₹ 4,00,000;
(iii) When its Market Value is given as ₹ 4,24,000;
(iv) When its Market Value is given as ₹ 3,70,000;
(v) When its Market Value is given as ₹ 3,10,000.

Answer:

Journal
Date 01.04.2018	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)

Question 19:

X, Y are partners sharing profits in the ratio of 2 : 1 . On 31st March, 2018, 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) If General Reserve is not to be shown in the new Balance Sheet .
(ii) If 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 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	General Reserve A/c	Dr.		60,000
April 1	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 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
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:

X and Y are in partnership sharing profits in the ratio of 2 : 3 . With effect from 1st April, 2018, they agreed to share profits in the ratio f 1 : 2 . For this purpose, goodwill of the firm is to be valued at two years' purchase of the average profit of last three years , which were ₹ 1, 50,000; ₹ 1,60,000 and ₹ 2,00,000 respectively. The reserves appear in the books at ₹ 1,10,000. Partners decide to continue showing Reserves in the books . You are required to give effect to the change by passing a single journal entry.

Answer:

Journal
Date 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
April 1	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 3 Adjustment of Goodwill

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.)

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, 2018. On this date the following revaluations have taken place :

	Book Value (₹ )	Revised Value (₹ )
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 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
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 (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

Question 22:

Ashish , Aakash and Amit are partners sharing profits and losses equally. The Balance Sheet as at 31st March, 2018 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, 2018. 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 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

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, 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.

Answer:

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

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

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 partners sharing profits and losses in the ratio of 2 : 2 : 1 . They decided to share profit w.e.f. 1st April, 2018 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 value (₹)	Revised value (₹)
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 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)

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 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

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, 2018 stood as:


Liabilities		₹	Assets	₹
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, 2018 , 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.

Answer:

Journal
Date 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
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, 2018
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 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, 2018 stood as:



Liabilities		₹	Assets	₹
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	4,20,000
B	1,20,000	3,60,000
		4,30,000		4,30,000

They decided that with effect from 1st April, 2018, they will share profits and losses in the ratio of 2 : 1 . For this purpose they decided that:
(i) Fixed Assets are to be depreciated 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
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

April 1

A’s Capital A/c

Double Entry Book Keeping Ts Grewal Vol I 2018 for Class 12 Commerce Accountancy Chapter 3 - Change In Profit Sharing Ratio Among The Existing Partners

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