NCERT Solutions for Class 12 Commerce Accountancy Chapter 4 Change In Profit Sharing Ratio Among The Existing Partners are provided here with simple stepbystep explanations. These solutions for Change In Profit Sharing Ratio Among The Existing Partners are extremely popular among Class 12 Commerce students for Accountancy Change In Profit Sharing Ratio Among The Existing Partners Solutions come handy for quickly completing your homework and preparing for exams. All questions and answers from the NCERT Book of Class 12 Commerce Accountancy Chapter 4 are provided here for you for free. You will also love the adfree experience on Meritnation’s NCERT Solutions. All NCERT Solutions for class Class 12 Commerce Accountancy are prepared by experts and are 100% accurate.
Page No 4.37:
Question 1:
A and B are sharing profits and losses equally. With effect from 1st April, 2019, they agree to share profits in the ratio of 4 : 3. Calculate individual partner's gain or sacrifice due to the change in ratio.
Answer:
Old Ratio (A and B) = 1 : 1
New Ratio (A and B) = 4 : 3
Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio
∴ A’s Gain = 1/14
B’s Sacrifice = 1/14
Page No 4.37:
Question 2:
X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2019, they decide to share profits and losses in the ratio of 5 : 2 : 3. Calculate each partner's gain or sacrifice due to the change in ratio.
Answer:
Old Ratio (X, Y and Z) = 5 : 3 : 2
New Ratio (X, Y and Z) = 5 : 2 : 3
Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio
∴ Z’s Gain = 1/10
Y’s Sacrifice = 1/10
Page No 4.37:
Question 3:
X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2019, they decide to share profits and losses equally. Calculate each partner's gain or sacrifice due to the change in ratio.
Answer:
Old Ratio (X, Y and Z) = 5 : 3 : 2
New Ratio (X, Y and Z) = 1 : 1 : 1
Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio
∴ Y’s Gain = 1/30
Z’s Gain = 4/30
X’s Sacrifice = 5/30
Page No 4.37:
Question 4:
A, B and C are partners sharing profits and losses in the ratio of 5 : 4 : 1. Calculate new profitsharing 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:
$\begin{array}{l}\text{CalculationofNewProfitSharingRatio}\\ \mathbf{\text{Case1}}\text{:}\\ \text{A:B:C}=\text{5:4:1}\left(\text{OldRatio}\right)\\ \text{Cacquires}\frac{1}{5}\text{thfromA}\\ \text{A'ssacrifice=}\frac{1}{5}\text{}\\ \text{C'sgain=}\frac{1}{5}\\ \text{A}=\frac{5}{10}\frac{1}{5}=\text{\hspace{0.17em}}\frac{52}{10}=\frac{3}{10}\\ \text{B}=\frac{4}{10}\\ \text{C}=\frac{1}{10}+\frac{1}{5}=\frac{1+2}{10}\text{\hspace{0.17em}}=\frac{3}{10}\\ \text{A:B:C}=\text{3:4:3}\\ \mathbf{\text{Case2}}\text{:}\\ \text{A:B:C}=\text{5:4:1}\left(\text{OldRatio}\right)\\ \text{Cacquires}\frac{1}{5}\text{thshareequallyfromA}\\ \text{A'ssacrifice=}\frac{1}{10}\\ \text{B'ssacrifice=}\frac{1}{10}\\ \text{C'sgain=}\frac{1}{5}\\ \text{A}=\frac{5}{10}\frac{1}{10}=\frac{51}{10}=\frac{4}{10}\\ \text{B}=\frac{4}{10}\frac{1}{10}=\frac{41}{10}=\frac{3}{10}\\ \text{C}=\frac{1}{10}+\frac{1}{5}=\frac{1+2}{10}=\frac{3}{10}\\ \text{A:B:C}=\text{4:3:3}\\ \mathbf{\text{Case3}}\text{:}\\ \text{A:B:C}=\text{5:4:1}\left(\text{OldRatio}\right)\\ \text{A:B:C}=\text{1:1:1}\left(\text{NewRatio}\right)\\ \text{A}=\frac{5}{10}\frac{1}{3}=\frac{1510}{30}=\frac{5}{30}\left(Sacrifice\right)\\ \text{B}=\frac{4}{10}\frac{1}{3}=\frac{1210}{30}=\frac{2}{30}\left(Sacrifice\right)\\ \text{C}=\frac{1}{10}\frac{1}{3}=\frac{310}{30}=\frac{7}{30}\left(Gain\right)\\ \mathbf{\text{Case4}}\text{:}\\ \text{A:B:C}=\text{5:4:1}\left(\text{OldRatio}\right)\\ \text{A'ssacrificetoC}=\frac{5}{10}\times \frac{1}{10}=\frac{1}{20}\\ \text{B'ssacrificetoC}=\frac{4}{10}\times \frac{1}{2}=\frac{4}{20}\\ \text{C'sgain}=\frac{1}{20}+\frac{4}{20}=\frac{5}{20}\\ \text{A}=\frac{5}{10}\frac{1}{20}=\frac{101}{20}=\frac{9}{20}\\ \text{B}=\frac{4}{10}\frac{4}{20}=\frac{84}{20}=\frac{4}{20}\\ \text{C}=\frac{1}{10}+\frac{5}{20}=\frac{2+5}{20}=\frac{7}{20}\\ \text{A:B:C}=\text{9:4:7}\end{array}$
Page No 4.37:
Question 5:
A, B and C shared profits and losses in the ratio of 3 : 2 : 1 respectively. With effect from 1st April, 2019, they agreed to share profits equally. The goodwill of the firm was valued at ₹ 18,000. Pass necessary Journal entries when: (a) Goodwill is adjusted through Partners' Capital Accounts; and (b) Goodwill is raised and written off.
Answer:
Calculation of Gain/Sacrifice made by the partners:
Particulars 
A 
B 
C 
Old Ratio 
3/6 
2/6 
1/6 
New Ratio 
1/3 
1/3 
1/3 
Gain/Sacrifice 
1/6 (Sacrifice) 
Nil 
1/6 (Gain) 
Case a)
Journal 

Date 
Particular 
L.F. 
Debit Amount 
Credit Amount 

2019 April 1 
C’s Capital A/c (18,000×1/6) 
Dr. 
3,000 


To A’s Capital A/c (18,000×1/6) 
3,000 


(Being Adjustment for goodwill) 
Case b)
Journal 

Date 
Particular 

L.F. 
Debit Amount 
Credit Amount 
2019 


April 1 
Goodwill A/c 
Dr. 
18,000 


To A’s Capital A/c (18,000×3/6) 

9,000 


To B’s Capital A/c (18,000×2/6) 

6,000 


To C’s Capital A/c (18,000×1/6) 

3,000 


(Being goodwill raised in the books) 






A’s Capital A/c (18,000×1/3) 
Dr. 
6,000 


B’s Capital A/c (18,000×1/3) 
Dr. 
6,000 


C’s Capital A/c (18,000×1/3) 
Dr. 
6,000 


To Goodwill A/c 

18,000 


(Being goodwill so raised written off) 

Page No 4.38:
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 profitsharing 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  201314  201415  201516  201617  201718 
Profits (₹)  70,000  85,000  45,000  35,000  10,000 (Loss) 
Answer:
Journal 

Date 
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
Page No 4.38:
Question 7:
Mandeep, Vinod and Abbas are partners sharing profits and losses in the ratio of 3 : 2 : 1. From 1st April, 2019 they decided to share profits equally. The Partnership Deed provides that in the event of any change in profitsharing ratio, goodwill shall be valued at three years' purchase of average profit of last five years. The profits and losses of past five years are:
Profit − Year ended 31st March, 2015 − ₹ 1,00,000; 2016 − ₹ 1,50,000; 2018 − ₹ 2,00,000; 2019 − ₹ 2,00,000.
Loss − Year ended 31st March, 2017 − ₹ 50,000.
Pass the Journal entry showing the working.
Answer:
Journal 

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

2019 





April 1 
Abbas’s Capital A/c 
Dr. 

60,000 


To Mandeep’s Capital A/c 



60,000 

(Adjustment entry made for change in ratio) 




Working Notes:
WN1: Calculation of Sacrifice or Gain
$\begin{array}{l}\text{Mandeep:Vinod:Abbas}=3\text{:2:1}\left(\text{OldRatio}\right)\\ \text{Mandeep:Vinod:Abbas}=\text{1:1:1}\left(\text{NewRatio}\right)\\ \text{Sacrificing(orGainingRatio)=OldRatioNewRatio}\\ \text{Mandeep'sshare}=\frac{3}{6}\frac{1}{3}=\frac{32}{6}=\frac{1}{6}\left(Sacrifice\right)\\ \text{Vinod'sshare}=\frac{2}{6}\frac{1}{3}=\frac{22}{6}=0\\ \text{Abbas'sshare}=\frac{1}{6}\frac{1}{3}=\frac{12}{6}=\frac{1}{6}\left(Gain\right)\end{array}$
WN2: Valuation of Goodwill
$\begin{array}{l}\text{Goodwill}=\text{AverageProfit}\times \text{No.ofyears'Purchase}\\ \text{}=1,2\text{0,000}\times 3=\text{Rs3,60,000}\end{array}$
$\begin{array}{l}\text{AverageProfit}=\frac{\text{TotalProfitsofpastyearsgiven}}{\text{Numberofyears}}\\ \text{}=\frac{1,00,000+1,50,000+2,00,000+2,00,00050,000}{5}=\text{Rs1,20,000}\end{array}$
WN3: Adjustment of Goodwill
$\begin{array}{l}\text{AmountdebitedtoAbbas'sCapitalA/c}=\text{3,60,000}\times \frac{1}{6}=\text{Rs60,000(shareofgain)}\\ \text{AmountcreditedtoMandeep'sCapitalA/c}=\text{3,60,000}\times \frac{1}{6}=\text{Rs60,000(shareofsacrifice)}\end{array}$
Page No 4.38:
Question 8:
X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2, decided to share future profits and losses equally with effect from 1st April, 2019. On that date, the goodwill appeared in the books at ₹ 12,000. But it was revalued at ₹ 30,000. Pass Journal entries assuming that goodwill will not appear in the books of account.
Answer:
Journal 

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

2019 






Y’s Capital A/c 
Dr. 

3,600 


Z’s Capital A/c 
Dr. 

2,400 


To Goodwill A/c 



12,000 

(Goodwill written off) 










2019 
Y’s Capital A/c 
Dr. 

1,000 

April 1 
Z’s Capital A/c 
Dr. 

4,000 


To X’s Capital A/c 


5,000 


(Amount of goodwill adjusted on change in profit sharing ratio) 









Working Notes:
WN 1 Calculation of Sacrificing (or Gaining) Ratio
Old Ratio (X, Y and Z) = 5 : 3 : 2
New Ratio (X, Y and Z) = 1 : 1 : 1
Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio
WN 2 Writing off of Old Goodwill
WN 3 Adjustment of Goodwill
Page No 4.38:
Question 9:
A and B are partners in a firm sharing profits in the ratio of 2 : 1. They decided with effect from 1st April, 2018, that they would share profits in the ratio of 3 : 2. But, this decision was taken after the profit for the year ended 31st March, 2019 of ₹ 90,000 was distributed in the old ratio.
The profits for the year ended 31st March, 2017 and 2018 were ₹ 60,000 and ₹ 75,000 respectively. It was decided that Goodwill Account will not be opened in the books of the firm and necessary adjustment be made through Capital Accounts which on 31st March, 2019 stood at ₹ 1,50,000 for A and ₹ 90,000 for B.
Pass necessary Journal entries and prepare Capital Accounts.
Answer:
Journal 

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

2018 






To B’s Capital A/c 


6,000 


(Adjustment of profit for 201819 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 201617
WN 3 Calculation of New Goodwill
$\mathrm{Goodwill}=\mathrm{Profit}\mathrm{of}201415+\mathrm{Profit}\mathrm{of}201516\phantom{\rule{0ex}{0ex}}=60,000+75,000=\mathrm{Rs}1,35,000$
WN 4 Adjustment of Goodwill
Page No 4.38:
Question 10:
Jai and Raj are partners sharing profits in the ratio of 3 : 2. With effect from 1st April, 2019, they decided to share profits equally. Goodwill appeared in the books at ₹ 25,000. As on 1st April, 2019, it was valued at ₹ 1,00,000. They decided to carry goodwill in the books of the firm.
Pass the Journal entry giving effect to the above.
Answer:
Journal


Date

Particulars

L.F.

Debit
Amount
(₹)

Credit
Amount
(₹)


2019
Apr.1 
Raj’s Capital A/c

Dr. 

7,500 


To Jai’s Capital A/c




7,500


(Adjustment for goodwill)





Working Notes:
Calculation of Gaining/Sacrificing Ratio
Sacrificing Ratio = Old Ratio ─ New Ratio
$\mathrm{Jai}=\frac{3}{5}\frac{1}{2}=\frac{1}{10}\left(\mathrm{sacrifice}\right)\phantom{\rule{0ex}{0ex}}\mathrm{Raj}=\frac{2}{5}\frac{1}{2}=\frac{1}{10}\left(\mathrm{gain}\right)$
Goodwill to be adjusted = 1,00,000 ─ 25,000 = 75,000
$\mathrm{Jai}\text{'}\mathrm{s}\mathrm{Share}=75,000\times \frac{1}{10}=7,500(\mathrm{credit},\mathrm{since}\mathrm{sacrificing})\phantom{\rule{0ex}{0ex}}\mathrm{Raj}\text{'}\mathrm{s}\mathrm{Share}=75,000\times \frac{1}{10}=7,500(\mathrm{debit},\mathrm{since}\mathrm{gaining})$
Page No 4.38:
Question 11:
X and Y are partners in a firm sharing profits and losses in the ratio of 3 : 2. With effect from 1st April, 2019, they decided to share future profits equally. On the date of change in the profitsharing 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 profitsharing ratio.
Answer:
Journal 

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

2019 






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
$\mathrm{X}\text{'}\mathrm{s}\mathrm{share}=1,50,000\times \frac{3}{5}=90,000\phantom{\rule{0ex}{0ex}}\mathrm{Y}\text{'}\mathrm{s}\mathrm{share}=1,50,000\times \frac{2}{5}=60,000$
Page No 4.39:
Question 12:
A and B are partners in a firm sharing profits in the ratio of 4 : 1. They decided to share future profits in the ratio of 3 : 2 w.e.f. 1st April, 2019. On that day, Profit and Loss Account showed a debit balance of ₹ 1,00,000. Pass Journal entry to give effect to the above.
Answer:
Journal 

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

2019 





April 1 
A’s Capital A/c 
Dr. 

80,000 


B’s Capital A/c 
Dr. 

20,000 


To Profit & Loss A/c 



1,00,000 

(Profit & Loss distributed) 










Page No 4.39:
Question 13:
X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. They decide to share future profits and losses in the ratio of 2 : 3 : 5 with effect from 1st April, 2019. They also decide to record the effect of the following accumulated profits, losses and reserves without affecting their book values by passing a single entry .
Book Values (₹)  
General Reserve  6,000 
Profit and Loss A/c (Credit)  24,000 
Advertisement Suspense A/c  12,000 
Answer:
Journal 


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

2019 






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
Page No 4.39:
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 profitsharing ratio, when:
(i) no information is given; (ii) there is no claim against it.
Answer:
(i) & (ii)
Journal 

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








Workmen Compensation Reserve A/c 
Dr. 

1,20,000 


To A’s Capital A/c 



60,000 

To B’s Capital A/c 



36,000 

To C’s Capital A/c 



24,000 

(Workmen Compensation Reserve distributed) 




Note:
In the both the cases, Workmen Compensation Reserve should be distributed in old ratio i.e., 5:3:2.
Page No 4.39:
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 profitsharing 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
$\mathrm{X}\text{'}\mathrm{s}\mathrm{share}=40,000\times \frac{5}{10}=20,000\phantom{\rule{0ex}{0ex}}\mathrm{Y}\text{'}\mathrm{s}\mathrm{share}=40,000\times \frac{3}{10}=12,000\phantom{\rule{0ex}{0ex}}\mathrm{Z}\text{'}\mathrm{s}\mathrm{share}=40,000\times \frac{2}{10}=8,000$
Page No 4.39:
Question 16:
X, Y and Z who are sharing profits in the ratio of 5 : 3 : 2, decide to share profits in the ratio of 2 : 3 : 5 with effect from 1st April, 2019. Workmen Compensation Reserve appears at ₹ 1,20,000 in the Balance Sheet as at 31st March, 2019 and Workmen Compensation Claim is estimated at ₹ 1,50,000. Pass Journal entries for the accounting treatment of Workmen Compensation Reserve.
Answer:
Journal 

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

2019 






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) 




Page No 4.39:
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 profitsharing 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
$\mathrm{A}\text{'}\mathrm{s}\mathrm{share}=15,000\times \frac{5}{10}=7,500\phantom{\rule{0ex}{0ex}}\mathrm{B}\text{'}\mathrm{s}\mathrm{share}=15,000\times \frac{3}{10}=4,500\phantom{\rule{0ex}{0ex}}\mathrm{C}\text{'}\mathrm{s}\mathrm{share}=15,000\times \frac{2}{10}=3,000$
Page No 4.39:
Question 18:
Nitin, Tarun and Amar are partners sharing profits equally and decide to share profits in the ratio of 2 : 2 : 1 w.e.f. 1st April, 2019. The extract of their Balance Sheet as at 31st March, 2019 is as follows:
Liabilities  ₹  Assets  ₹ 
Investments Fluctuation Reserve  60,000  Investments (At Cost)  4,00,000 
Pass the Journal entries in each of the following situations:
(i) When its Market Value is not given;
(ii) When its Market Value is ₹ 4,00,000;
(iii) When its Market Value is ₹ 4,24,000;
(iv) When its Market Value is ₹ 3,70,000;
(v) When its Market Value is ₹ 3,10,000.
Answer:
Journal 

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

2019 





April 1 
Investment Fluctuation Reserve A/c 
Dr. 

60,000 


To Nitin’s Capital A/c 



20,000 

To Tarun’s Capital A/c 



20,000 

To Amar’s Capital A/c 



20,000 

(Investment Fluctuation Reserve distributed) 











Investment Fluctuation Reserve A/c 
Dr. 

60,000 


To Nitin’s Capital A/c 



20,000 

To Tarun’s Capital A/c 



20,000 

To Amar’s Capital A/c 



20,000 

(Investment Fluctuation Reserve distributed) 











Investment Fluctuation Reserve A/c 
Dr. 

60,000 


To Nitin’s Capital A/c 



20,000 

To Tarun’s Capital A/c 



20,000 

To Amar’s Capital A/c 



20,000 

(Investment Fluctuation Reserve distributed) 











Investments A/c 
Dr. 

24,000 


To Revaluation A/c 



24,000 

(Investments revalued) 











Revaluation A/c 
Dr. 

24,000 


To Nitin’s Capital A/c 



8,000 

To Tarun’s Capital A/c 



8,000 

To Amar’s Capital A/c 



8,000 

(Revaluation profit transferred to Partners’ Capital A/c) 











Investment Fluctuation Reserve A/c 
Dr. 

60,000 


To Investment A/c 



30,000 

To Nitin’s Capital A/c 



10,000 

To Tarun’s Capital A/c 



10,000 

To Amar’s Capital A/c 



10,000 

(Investment Fluctuation Reserve distributed) 











Investment Fluctuation Reserve A/c 
Dr. 

60,000 


Revaluation A/c 
Dr. 

30,000 


To Investment A/c 



90,000 

(Decrease in investments set off against IFR and balance debited to Revaluation A/c) 











Nitin’s Capital A/c 
Dr. 

10,000 


Tarun’s Capital A/c 
Dr. 

10,000 


Amar’s Capital A/c 
Dr. 

10,000 


To Revaluation A/c 



30,000 

(Loss on revaluation transferred to Partners’ Capital A/c) 



Page No 4.40:
Question 19:
X and Y are partners sharing profits in the ratio of 2 : 1. On 31st March, 2019, their Balance Sheet showed General Reserve of ₹ 60,000. It was decided that in future they will share profits and losses in the ratio of 3 : 2. Pass necessary Journal entry in each of the following alternative cases:
(i) When General Reserve is not to be shown in the new Balance Sheet.
(ii) When General Reserve is to be shown in the new Balance Sheet.
Answer:
(i) If they do not want to show General Reserve in the new Balance Sheet
Journal 

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

2019 






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
$\mathrm{X}\text{'}\mathrm{s}\mathrm{share}=60,000\times \frac{2}{3}=40,000\phantom{\rule{0ex}{0ex}}\mathrm{Y}\text{'}\mathrm{s}\mathrm{share}=60,000\times \frac{1}{3}=20,000$
(ii) If they want to show General Reserve in the new Balance Sheet
Journal 

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

2019 






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
$\mathrm{Sacrificing}\mathrm{Ratio}=\mathrm{Old}\mathrm{Ratio}\mathrm{New}\mathrm{Ratio}\phantom{\rule{0ex}{0ex}}\mathrm{X}=\frac{2}{3}\frac{3}{5}=\frac{1}{15}\left(\mathrm{sacrifice}\right)\phantom{\rule{0ex}{0ex}}\mathrm{Y}=\frac{1}{3}\frac{2}{5}=\frac{1}{15}\left(\mathrm{gain}\right)$
WN2 Calculation of Compensation by Y to X
$\mathrm{Amount}\mathrm{to}\mathrm{be}\mathrm{compensated}=60,000\times \frac{1}{15}=4,000$
Page No 4.40:
Question 20:
Bhavya and Sakshi are partners in a firm, sharing profits and losses in the ratio of 3 : 2. On 31st March, 2018 their Balance Sheet was as under:
Liabilities  Amount (₹) 
Assets  Amount (₹) 

Sundry Creditors  13,800  Furniture  16,000  
General Reserve  23,400  Land and Building  56,000  
Investment Fluctuation Fund  20,000  Investments  30,000  
Bhavya's Capital  50,000  Trade Receivables  18,500  
Sakshi's Capital  40,000  Cash in Hand  26,700  
1,47,200  1,47,200  
The partners have decided to change their profit sharing ratio to 1 : 1 with immediate effect. For the purpose, they decided that:
(i) Investments to be valued at ₹ 20,000.
(ii) Goodwill of the firm be valued at ₹ 24,000.
(iii) General Reserve not to be distributed between the partners.
You are required to pass necessary Journal entries in the books of the firm. Show workings.
Answer:
In the books of Bhavya and Sakshi Journal 

Date 
Particulars 

L.F. 
Debit (₹) 
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 profitsharing 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) 
Page No 4.40:
Question 21:
X, Y and Z share profits as 5 : 3 : 2. They decide to share their future profits as 4 : 3 : 3 with effect from 1st April, 2019. On this date the following revaluations have taken place:
Book Values (₹)  Revised Values (₹)  
Investments  22,000  25,000 
Plant and Machinery  25,000  20,000 
Land and Building  40,000  50,000 
Outstanding Expenses  5,600  6,000 
Sundry Debtors  60,000  50,000 
Trade Creditors  70,000  60,000 
Answer:
Journal 

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

2019 






To X’s Capital A/c 



760 

(Adjustment of revaluation profit made) 








Working Notes:
WN 1 Calculation of Net Profit or Loss on Revaluation
Particulars  Amount (₹) 
Increase in Investment 
3,000 (Cr.) 
Decrease in Plant and Machinery 
(5,000) (Dr.) 
Increase in Land and Building 
10,000 (Cr.) 
Increase in Outstanding Expenses 
(400) (Dr.) 
Decrease in Sunday Debtors 
(10,000) (Dr.) 
Decrease in Trade Creditors 
10,000 (Cr.) 
Profit on Revaluation 
7,600 (Cr.) 


WN 2 Calculation of Sacrificing (or Gaining) Ratio
Old Ratio (X, Y and Z) = 5 : 3 : 2
New Ratio (X, Y and Z) = 4 : 3 : 3
Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio
WN 3 Adjustment of Revaluation Profit
Page No 4.41:
Question 22:
Ashish, Aakash and Amit are partners sharing profits and losses equally. The Balance Sheet as at 31st March, 2019 was as follows:


Liabilities 
Amount 
Assets 
Amount 

Sundry Creditors  75,000  Cash in Hand  24,000  
General Reserve  90,000  Cash at Bank  1,40,000  
Capital A/cs:  Sundry Debtors 
80,000 

Ashish 
3,00,000 
Stock  1,40,000  
Aakash  3,00,000  Land and Building  4,00,000  
Amit 
2,75,000 
8,75,000  Machinery  2,50,000 
Advertisement Suspense  6,000  
10,40,000  10,40,000  


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

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

2019 





April 1 
General Reserve A/c 
Dr. 

90,000 


To Ashish’s Capital A/c 



30,000 

To Akash’s Capital A/c 



30,000 

To Amit’s Capital A/c 



30,000 

(Reserve distributed) 










April 1 
Ashish’s Capital A/c 
Dr. 

2,000 


Akash’s Capital A/c 
Dr. 

2,000 


Amit’s Capital A/c 
Dr. 

2,000 


To Advertisement Suspense A/c 



6,000 

(Advertisement Suspense distributed) 










April 1 
Revaluation A/c 
Dr. 

54,000 


To Stock A/c 



15,000 

To Machinery A/c 



25,000 

To Provision for Doubtful Debts A/c 



4,000 

To Akash’s Capital A/c (Remuneration) 



10,000 

(Assets revalued) 










April 1 
Land & Building A/c 
Dr. 

62,000 


To Revaluation A/c 



62,000 

(Assets revalued) 










April 1 
Revaluation A/c 
Dr. 

8,000 


To Ashish’s Capital A/c 



2,666 

To Akash’s Capital A/c 



2,666 

To Amit’s Capital A/c 



2,667 

(Profit made) 









Page No 4.41:
Question 23:
A, B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2019 stood as follows:
Liabilities 
Amount
(₹)

Assets 
Amount
(₹)


Capital A/cs:  Land and Building  3,50,000  
A  2,50,000  Machinery  2,40,000  
B  2,50,000  Computers  70,000  
C  2,00,000  7,00,000  Investments (Market value ₹ 90,000)  1,00,000 
General Reserve  60,000  Sundry Debtors  50,000  
Investments Fluctuation Reserve  30,000  Cash in Hand  10,000  
Sundry Creditors  90,000  Cash at Bank  55,000  
Advertisement Suspense  5,000  
8,80,000  8,80,000  
They decided to share profits equally w.e.f. 1st April, 2019. They also agreed that:
(i) Value of Land and Building be decreased by 5%.
(ii) Value of Machinery be increased by 5%.
(iii) A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
(iv) A Motor Cycle valued at ₹ 20,000 was unrecorded and is now to be recorded in the books.
(v) Out of Sundry Creditors, ₹ 10,000 is not payable.
(vi) Goodwill is to be valued at 2 years' purchase of last 3 years profits. Profits being for 201819 − ₹ 50,000 (Loss); 201718 − ₹ 2,50,000 and 201617 − ₹ 2,50,000.
(vii) C was to carry out the work for reconstituting the firm at a remuneration (including expenses) of ₹ 5,000. Expenses came to ₹ 3,000.
Pass Journal entries and prepare Revaluation Account.
Answer:
Journal 

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

2019 





April 1 
General Reserve A/c 
Dr. 

60,000 


To A’s Capital A/c 



30,000 

To B’s Capital A/c 



18,000 

To C’s Capital A/c 



12,000 

(Reserve distributed) 











A’s Capital A/c 
Dr 

2,500 


B’s Capital A/c 
Dr. 

1,500 


C’s Capital A/c 
Dr. 

1,000 


To Advertisement Suspense A/c 



5,000 

(Advertisement Suspense distributed) 











Investment Fluctuation Reserve A/c 
Dr. 

30,000 


To Investment A/c 



10,000 

To A’s Capital A/c 



10,000 

To B’s Capital A/c 



6,000 

To C’s Capital A/c 



4,000 

(Investment Fluctuation Reserve distributed) 











Machinery A/c 
Dr. 

12,000 


Motor Cycle A/c 
Dr. 

20,000 


Creditors A/c 
Dr. 

10,000 


To Revaluation A/c 



42,000 

(Assets revalued) 











Revaluation A/c 


25,000 


To Land & Building A/c 



17,500 

To Provision for Doubtful Debts A/c 



2,500 

To Bank A/c (Remuneration) 



5,000 

(Assets revalued) 











Revaluation A/c 


17,000 


To A’s Capital A/c 



8,500 

To B’s Capital A/c 



5,100 

To C ’s Capital A/c 



3,400 

(Profit on revaluation transferred to Partners’ Capital A/c) 











B’s Capital A/c 
Dr. 

10,000 


C ’s Capital A/c 
Dr. 

40,000 


To A’s Capital A/c 



50,000 

(Goodwill adjusted) 









Revaluation A/c 

Dr. 

Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

Land & Building A/c 
17,500 
Machinery A/c 
12,000 

Provision for Doubtful Debts A/c 
2,500 
Motor Cycle A/c 
20,000 

Bank A/c (Remuneration) 
5,000 
Creditors A/c 
10,000 

Profit transferred to: 




A 
8,500 




B 
5,100 




C 
3,400 
17,000 




42,000 

42,000 






Working Notes:
WN1: Calculation of sacrifice or gain
$\begin{array}{l}\text{A:B:C}=5\text{:3:2}\left(\text{OldRatio}\right)\\ \text{A:B:C}=\text{1:1:1}\left(\text{NewRatio}\right)\\ \text{Sacrificing(orGainingRatio)=OldRatioNewRatio}\\ \text{A'sshare}=\frac{5}{10}\frac{1}{3}=\frac{1510}{30}=\frac{5}{30}\left(Sacrifice\right)\\ \text{B'sshare}=\frac{3}{10}\frac{1}{3}=\frac{910}{30}=\frac{1}{30}\left(Gain\right)\\ \text{C'sshare}=\frac{2}{10}\frac{1}{3}=\frac{610}{30}=\frac{4}{30}\left(Gain\right)\end{array}$
WN2: Valuation of Goodwill
$\begin{array}{l}\text{Goodwill}=\text{AverageProfit}\times \text{No.ofyears'Purchase}\\ \text{}=1,5\text{0,000}\times 2=\text{Rs3,00,000}\end{array}$
WN3: Adjustment of Goodwill
$\begin{array}{l}\text{Amount\hspace{0.17em}creditedtoA'sCapitalA/c}=\text{3,00,000}\times \frac{5}{30}=\text{Rs50,000}\\ \text{Amount\hspace{0.17em}debitedtoB'sCapitalA/c}=\text{3,00,000}\times \frac{1}{30}=\text{Rs10,000}\\ \text{Amount\hspace{0.17em}debitedtoC'sCapitalA/c}=\text{3,00,000}\times \frac{4}{30}=\text{Rs40,000}\end{array}$
Page No 4.42:
Question 24:
A, B and C are sharing profits and losses in the ratio of 2 : 2 : 1. They decided to share profit w.e.f. 1st April, 2019 in the ratio of 5 : 3 : 2. They also decided not to change the values of assets and liabilities in the books of account. The book values and revised values of assets and liabilities as on the date of change were as follows:
Book values (₹)  Revised values (₹)  
Machinery  2,50,000  3,00,000 
Computers  2,00,000  1,75,000 
Sundry Creditors  90,000  75,000 
Outstanding Expenses  15,000  25,000 
Pass an adjustment entry.
Answer:
Journal 

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

2019 





April 1 
A’s Capital A/c $(30,000\times \frac{1}{10}=3,000)$ 
Dr. 

3,000 


To B’s Capital A/c 



3,000 

(Adjustment entry made for change in ratio) 










Working Notes:
WN1: Calculation of Sacrifice or Gain
$\begin{array}{l}\text{A:B:C}=2\text{:2:1}\left(\text{OldRatio}\right)\\ \text{A:B:C}=5\text{:3:2}\left(\text{NewRatio}\right)\\ \text{Sacrificing(orGainingRatio)=OldRatioNewRatio}\\ \text{A'sshare}=\frac{2}{5}\frac{5}{10}=\frac{45}{10}=\frac{1}{10}\left(Gain\right)\\ \text{B'sshare}=\frac{2}{5}\frac{3}{10}=\frac{43}{10}=\frac{1}{10}\left(Sacrifice\right)\\ \text{C'sshare}=\frac{1}{5}\frac{2}{10}=\frac{22}{10}=0\end{array}$
WN2: Calculation of Profit or Loss on Revaluation
Revaluation A/c 

Dr. 

Cr. 

Particulars 
Amount (₹) 
Particulars 
Amount (₹) 

Computers A/c 
25,000 
Machinery A/c 
50,000 

Outstanding expenses A/c 
10,000 
Creditors A/c 
15,000 

Profit on Revaluation 
30,000 









65,000 

65,000 





Page No 4.42:
Question 25:
X, Y and Z are partners sharing profits and losses in the ratio of 7 : 5 : 4. Their Balance Sheet as at 31st March, 2019 stood as:
Liabilities  Amount (₹)  Assets  Amount (₹)  
Capital A/cs:  Sundry Assets  7,00,000  
X  2,10,000  
Y  1,50,000  
Z  1,20,000  4,80,000  
General Reserve  65,000  
Profit and Loss A/c  25,000  
Creditors  1,30,000  
7,00,000  7,00,000  
Partners decided that with effect from 1st April, 2019, they will share profits and losses in the ratio of 3 : 2 : 1. For this purpose, goodwill of the firm was valued at ₹ 1,50,000. The partners neither want to record the goodwill nor want to distribute the General Reserve and profits.
Pass a Journal entry to record the change and prepare Balance Sheet of the constituted firm.
Answer:
Journal 

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

2019 



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 

Liabilities 
Amount (₹) 
Assets 
Amount (₹) 

Capital A/c s: 

Sunday Assets 
7,00,000 

X 
1,95,000 



Y 
1,45,000 



Z 
1,40,000 
4,80,000 


General Reserve 
65,000 



Profit and Loss A/c 
25,000 



Creditors 
1,30,000 

7,00,000  7,00,000  




Working Notes:
WN 1 Calculation of Sacrificing (or Gaining) Ratio
Old Ratio (X, Y and Z) = 7 : 5 : 4
New Ratio (X, Y and Z) = 3 : 2 : 1
Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio
WN 2 Adjustment of General Reserve, Profit and Loss Account and Goodwill
Total Amount for Adjustment = General Reserve + Profit and Loss Account + Goodwill
= 65,000 + 25,000 + 1,50,000 = Rs 2,40,000
WN 3
Partners’ Capital Accounts 

Dr. 

Cr. 

Particulars 
X 
Y 
Z 
Particulars 
X 
Y 
Z 
Z's Capital A/c 
15,000 
5,000 
– 
Balance b/d 
2,10,000 
1,50,000 
1,20,000 




X's Capital A/c 
– 
– 
15,000 




Y's Capital A/c 
– 
– 
5,000 
Balance c/d 
1,95,000 
1,45,000 
1,40,000 





2,10,000 
1,50,000 
1,40,000 

2,10,000 
1,50,000 
1,40,000 








Page No 4.42:
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: Writtenoff 
6,000 
44,000 
Stock 
40,000 

Bills Payable 
20,000 
Debtors 
30,000 







3,02,000 

3,02,000 





Working Notes
Page No 4.43:
Question 27:
A and B are partners sharing profits in the ratio of 4 : 3. Their Balance Sheet as at 31st March, 2019 stood as:
Liabilities  Amount (₹) 
Assets  Amount (₹) 

Sundry Creditors  28,000  Cash  20,000  
Reserve  42,000  Sundry Debtors  1,20,000  
Capital A/cs:  Stock  1,40,000  
A  2,40,000  Fixed Assets  1,50,000  
B  1,20,000  3,60,000  
4,30,000  4,30,000  
(i) Fixed Assets are to be reduced by 10%.
(ii) A Provision for Doubtful Debts of 6% be made on Sundry Debtors.
(iii) Stock be valued at ₹ 1,90,000.
(iv) An amount of ₹ 3,700 included in Creditors is not likely to be claimed .
Partners decided to record the revised values in the books. However, they do not want to disturb the Reserve. You are required to pass Journal entries, prepare Capital Accounts of Partners and the revised Balance Sheet.
Answer:
Journal 

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

2019 






To B’s Capital A/c 



4,000 

(Adjustment of General Reserve on change in profit sharing ratio) 




