TS Grewal Solutions for Class 12 Accountancy Vol 1 Chapter 4
TS Grewal Solutions for Class 12 Accountancy Chapter 4 – Change in Profit â€“ Sharing Ratio Among the Existing Partners is considered to be an essential concept to be learnt completely by the students. Here, we have provided TS Grewal Accountancy solutions for class 12 in a simple and a step by step manner, which is helpful for the students to score well in their upcoming board examinations.
Class 12 TS Grewal Solutions Accountancy Vol 1 Chapter 4
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.
Solution:
Old Ratio (A & B) = 1 : 1
New Ratio (A & B) = 4 : 3
Sacrificing or Gaining Ratio = Old Ratio âˆ’ New Ratio
Aâ€™s share = \(\frac{1}{2}\) – \(\frac{4}{7}\) = \(\frac{78}{14}\) = \(\frac{1}{14}\)
Bâ€™s share = \(\frac{1}{2}\) – \(\frac{3}{7}\) = \(\frac{76}{14}\) = \(\frac{1}{14}\)
So, Aâ€™s gain and Bâ€™s sacrifice = \(\frac{1}{14}\) share
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.
Solution:
Old Ratio (X, Y, and Z) = 5 : 3 : 2
New Ratio (X, Y, and Z) = 5 : 2 : 3
Sacrificing or Gaining Ratio = Old Ratio âˆ’ New Ratio
Xâ€™s share = \(\frac{5}{10}\) – \(\frac{5}{10}\) = 0
Yâ€™s share = \(\frac{3}{10}\) – \(\frac{2}{10}\) = \(\frac{1}{10}\) (Sacrifice)
Zâ€™s share = \(\frac{2}{10}\) – \(\frac{3}{10}\) = \(\frac{1}{10}\) (Gain)
So, Zâ€™s Gain = \(\frac{1}{10}\) and Yâ€™s Sacrifice = \(\frac{1}{10}\)
Question 3
X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2019, they decide to share profits and losses equally. Calculate each partner’s gain or sacrifice due to the change in ratio.
Solution:
Old Ratio (X, Y, and Z) = 5 : 3 : 2
New Ratio (X, Y, and Z) = 1 : 1 : 1
Sacrificing or Gaining Ratio = Old Ratio âˆ’ New Ratio
Xâ€™s share = \(\frac{5}{10}\) – \(\frac{1}{3}\) = \(\frac{1510}{30}\) = \(\frac{5}{30}\) (Sacrifice)
Yâ€™s share = \(\frac{3}{10}\) – \(\frac{1}{3}\) = \(\frac{910}{30}\) = \(\frac{1}{30}\) (Gain)
Zâ€™s share = \(\frac{2}{10}\) – \(\frac{1}{3}\) = \(\frac{610}{30}\) = \(\frac{4}{30}\) (Gain)
So, Yâ€™s Gain = \(\frac{1}{30}\) , Zâ€™s Gain = \(\frac{4}{30}\) , and Xâ€™s Sacrifice = \(\frac{5}{30}\)
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.
Solution:
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 = \(\frac{1}{5}\)th
C’s gain = \(\frac{1}{5}\)th
As share = \(\frac{5}{10}\) – \(\frac{1}{5}\) = \(\frac{52}{10}\) = \(\frac{3}{10}\)
Bâ€™s share = \(\frac{4}{10}\)
Câ€™s share = \(\frac{1}{10}\) – \(\frac{1}{5}\) = \(\frac{1+2}{10}\) = \(\frac{3}{10}\)
A:B:C = 3:4:3
Case 2:
A:B:C = 5:4:1(Old Ratio)
C acquires \(\frac{1}{5}\)th equally from A and B
A’s sacrifice = \(\frac{1}{10}\)th
B’s sacrifice = \(\frac{1}{10}\)th
C’s gain = \(\frac{1}{5}\)th
Aâ€™s share = \(\frac{5}{10}\) – \(\frac{1}{10}\) = \(\frac{51}{10}\) = \(\frac{4}{10}\)
Bâ€™s share = \(\frac{4}{10}\) – \(\frac{1}{10}\) = \(\frac{41}{10}\) = \(\frac{3}{10}\)
Câ€™s share = \(\frac{1}{10}\) – \(\frac{1}{5}\) = \(\frac{1+2}{10}\) = \(\frac{3}{10}\)
A:B:C = 4:3:3
Case 3:
A:B:C = 5:4:1(Old Ratio)
A:B:C = 1:1:1 (New Ratio)
Aâ€™s share = \(\frac{5}{10}\) – \(\frac{1}{3}\) = \(\frac{1510}{30}\) = \(\frac{5}{30}\) (Sacrifice)
Bâ€™s share = \(\frac{4}{10}\) – \(\frac{1}{3}\) = \(\frac{1210}{30}\) = \(\frac{2}{30}\) (Sacrifice)
Câ€™s share = \(\frac{1}{10}\) – \(\frac{1}{3}\) = \(\frac{310}{30}\) = – \(\frac{3}{10}\) (Gain)
Case 4:
A:B:C = 5:4:1(Old Ratio)
A’s sacrifice to C = \(\frac{5}{10}\) X \(\frac{1}{10}\) = \(\frac{1}{20}\)
B’s sacrifice to C = \(\frac{4}{10}\) X \(\frac{1}{2}\) = \(\frac{4}{20}\)
C’s gain = \(\frac{1}{20}\) X \(\frac{4}{20}\) = \(\frac{5}{20}\)
Aâ€™s share = \(\frac{5}{10}\) – \(\frac{1}{20}\) = \(\frac{101}{20}\) = \(\frac{9}{20}\)
Bâ€™s share = \(\frac{4}{10}\) – \(\frac{4}{20}\) = \(\frac{84}{20}\) = \(\frac{4}{20}\)
Câ€™s share = \(\frac{1}{10}\) – \(\frac{5}{20}\) = \(\frac{5+2}{20}\) = – \(\frac{7}{20}\)
A:B:C = 9:4:7
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 â‚¹ 18,000. Pass necessary Journal entries when: (a) Goodwill is adjusted through Partners’ Capital Accounts; and (b) Goodwill is raised and written off.
Solution:
Case a)
Journal 

Date 
Particular 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

1st April 
Câ€™s Capital A/c (18,000Ã—1/6) 
Dr. 
3,000 

To Aâ€™s Capital A/c (18,000Ã—1/6) 
3,000 

(Goodwill Adjustment) 
Case b)
Journal 

Date 
Particular 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
Goodwill A/c 
Dr. 
18,000 

To Aâ€™s Capital A/c (18,000Ã—3/6) 
9,000 

To Bâ€™s Capital A/c (18,000Ã—2/6) 
6,000 

To Câ€™s Capital A/c (18,000Ã—1/6) 
3,000 

(Being goodwill raised in the books) 

Aâ€™s Capital A/c (18,000Ã—1/3) 
Dr. 
6,000 

Bâ€™s Capital A/c (18,000Ã—1/3) 
Dr. 
6,000 

Câ€™s Capital A/c (18,000Ã—1/3) 
Dr. 
6,000 

To Goodwill A/c 
18,000 

(Being goodwill raised & written off) 
Working Note:
Old Ratio (A,B, and C) = 3 : 2 : 1
New Ratio (A,B, and C) = 1 : 1 : 1
Sacrificing or Gaining Ratio = Old Ratio âˆ’ New Ratio
Aâ€™s share = \(\frac{3}{6}\) – \(\frac{1}{3}\) = \(\frac{3}{6}\) – \(\frac{2}{6}\) = \(\frac{1}{6}\) (Sacrifice)
Bs share = \(\frac{2}{6}\) – \(\frac{1}{3}\) = \(\frac{2}{6}\) – \(\frac{2}{6}\) = 0
Câ€™s share = \(\frac{1}{6}\) – \(\frac{1}{3}\) = \(\frac{1}{6}\) – \(\frac{2}{6}\) = \(\frac{1}{6}\) (Gain)
Goodwill adjustment = â‚¹ 18,000
A receives = 18,000 X \(\frac{1}{6}\) = â‚¹3,000
C gains = 18,000 X \(\frac{1}{6}\) = â‚¹3,000
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 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 (â‚¹) 
70,000 
85,000 
45,000 
35,000 
10,000 (Loss) 
You are required to calculate goodwill and pass journal entry.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
Yâ€™s Capital A/c 
Dr. 
3,000 

Zâ€™s Capital A/c 
Dr. 
12,000 

To Xâ€™s Capital A/c 
15,000 

(Goodwill amount adjusted on change in profit sharing ratio) 
Working Notes 1: 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 âˆ’ New Ratio
Xâ€™s share = \(\frac{5}{10}\) – \(\frac{1}{3}\) = \(\frac{1510}{30}\) = \(\frac{5}{30}\) (Sacrifice)
Ys share = \(\frac{3}{10}\) – \(\frac{1}{3}\) = \(\frac{910}{30}\) – \(\frac{1}{30}\) (Gain)
Zâ€™s share = \(\frac{2}{10}\) – \(\frac{1}{3}\) = \(\frac{610}{30}\) – \(\frac{4}{30}\) (Gain)
Working Notes 2: Goodwill Evaluation
Goodwill = Average Profit X No. of Yearsâ€™ Purchased
Average Profit = \(\frac{70,000\, +\, 85,000\, +\, 45,000\, +,35,000\, \, 10,000}{5}\) = â‚¹ 45,000
No. of Yearsâ€™ Purchased = 2
So, Goodwill = â‚¹ 45,000 X 2 = â‚¹ 90,000
Working Notes 3: Goodwill Adjustment
Credited amount to Xâ€™s Capital A/c = 90,000 X \(\frac{5}{30}\) (Sacrifice) = â‚¹ 15,000
Credited amount to Yâ€™s Capital A/c = 90,000 X \(\frac{1}{30}\) (Gain) = â‚¹ 3,000
Credited amount to Zâ€™s Capital A/c = 90,000 X \(\frac{4}{30}\) (Gain) = â‚¹ 12,000
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 the average profit of the last five years. The profits and losses of the past five years are:
Profit âˆ’ Year ended 31st March, 2015 âˆ’ â‚¹ 1,00,000; 2016 âˆ’ â‚¹ 1,50,000; 2018 âˆ’ â‚¹ 2,00,000; 2019 âˆ’ â‚¹ 2,00,000.
Loss âˆ’ Year ended 31st March, 2017 âˆ’ â‚¹ 50,000.
Pass the Journal entry showing the working.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
Abbasâ€™s Capital A/c 
Dr. 
60,000 

To Mandeepâ€™s Capital A/c 
60,000 

(Being adjustment made for a change in the ratio) 
Working Notes 1: Sacrifice or Gain Evaluation
Old Ratio (Mandeep, Vinod, and Abbas ) = 3 : 2 : 1
New Ratio (Mandeep, Vinod, and Abbas ) = 1 : 1 : 1
Sacrificing or Gaining Ratio = Old Ratio âˆ’ New Ratio
Mandeepâ€™s share = \(\frac{3}{6}\) – \(\frac{1}{3}\) = \(\frac{32}{6}\) = \(\frac{1}{6}\) (Sacrifice)
Vinodâ€™s share = \(\frac{2}{6}\) – \(\frac{1}{3}\) = \(\frac{22}{6}\) = 0
Abbasâ€™s share = \(\frac{1}{6}\) – \(\frac{1}{3}\) = \(\frac{12}{6}\) = \(\frac{1}{6}\) (Gain)
Working Notes 2: Goodwill Evaluation
Goodwill = Average Profit X No. of Yearsâ€™ Purchased
Average Profit = \(\frac{Total\, Profits\, of\, Past\, Years}{Number\, of\, Years}\)
Average Profit = \(\frac{1,00,000\, +\, 1,50,000\, +\, 2,00,000\, +,2,00,000\, \, 50,000}{5}\) = â‚¹ 1,20,000
No. of Yearsâ€™ Purchased = 3
So, Goodwill = â‚¹ 1,20,000 X 3 = â‚¹ 3,60,000
Working Notes 3: Goodwill Adjustment
Debited amount to Abbas’s Capital A/c = 3,60,000 X \(\frac{1}{6}\) (Gain) = â‚¹ 60,000
Credited amount to Mandeepâ€™s Capital A/c = 3,60,000 X \(\frac{1}{6}\) (Sacrifice)= â‚¹ 60,000
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 â‚¹ 12,000. But it was revalued at â‚¹ 30,000. Pass Journal entries assuming that goodwill will not appear in the books of account.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
Xâ€™s Capital A/c 
Dr. 
6,000 

Yâ€™s Capital A/c 
Dr. 
3,600 

Zâ€™s Capital A/c 
Dr. 
2,400 

To Goodwill A/c 
12,000 

(Goodwill written off) 

April 1 
Yâ€™s Capital A/c 
Dr. 
1,000 

Zâ€™s Capital A/c 
Dr. 
4,000 

To Xâ€™s Capital A/c 
5,000 

(Goodwill adjusted on change in profit sharing ratio) 
Working Notes 1: Gain or Sacrificing Ratio Evaluation
Old Ratio (X, Y and Z) = 5 : 3 : 2
New Ratio (X, Y and Z) = 1 : 1 : 1
Sacrificing (or Gaining) Ratio = Old Ratio âˆ’ New Ratio
Xâ€™s share = \(\frac{5}{10}\) – \(\frac{1}{3}\) = \(\frac{1510}{30}\) = \(\frac{5}{30}\) (Sacrifice)
Ys share = \(\frac{3}{10}\) – \(\frac{1}{3}\) = \(\frac{910}{30}\) – \(\frac{1}{30}\) (Gain)
Zâ€™s share = \(\frac{2}{10}\) – \(\frac{1}{3}\) = \(\frac{610}{30}\) – \(\frac{4}{30}\) (Gain)
Working Notes 2: Old Goodwill Writtenoff Evaluation
Xâ€™s share = 12,000 x \(\frac{5}{10}\) = â‚¹ 60,000
Yâ€™s share = 12,000 x \(\frac{3}{10}\) = â‚¹ 3,600
Zâ€™s share = 12,000 x \(\frac{2}{10}\) = â‚¹ 2,400
Working Notes 3: Goodwill Adjustment
Credited amount to x’s Capital A/c = 30,000 X \(\frac{5}{30}\) (Sacrifice) = â‚¹ 5,000
Debited amount to Yâ€™s Capital A/c = 30,000 X \(\frac{1}{30}\) (Gain)= â‚¹ 1,000
Debited amount to Zâ€™s Capital A/c = 30,000 X \(\frac{4}{30}\) (Gain)= â‚¹ 4,000
Question 9
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 â‚¹ 12,000. But it was revalued at â‚¹ 30,000. Pass Journal entries assuming that goodwill will not appear in the books of account.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
Aâ€™s Capital A/c 
Dr. 
6,000 

To Bâ€™s Capital A/c 
6,000 

(Profit adjustment for 201819 on change in profit sharing ratio) 

April 1 
Bâ€™s Capital A/c 
Dr. 
9,000 

To Aâ€™s Capital A/c 
9,000 

(Goodwill Adjustment made on change in profit sharing ratio) 
Partnersâ€™ Capital Accounts 

Dr. 




Cr. 
Particulars 
A 
B 
Particulars 
A 
B 
B’s Capital A/c 
6,000 
â€“ 
Balance b/d 
1,50,000 
90,000 
(Profit Adjustment) 
A’s Capital A/c 
â€“ 
6,000 

A’s Capital A/c 
â€“ 
9,000 
(Profit Adjustment) 

(Goodwill Adjustment) 
B’s Capital A/c 
9,000 
â€“ 

Balance c/d 
1,53,000 
87,000 
(Goodwill Adjustment) 

1,59,000 
96,000 
1,59,000 
96,000 
Working Notes 1: Gain or Sacrificing Ratio Evaluation
Old Ratio (A and B) = 2 : 1
New Ratio (A and B) = 3 : 2
Sacrificing (or Gaining) Ratio = Old Ratio âˆ’ New Ratio
Aâ€™s share = \(\frac{2}{3}\) – \(\frac{3}{5}\) = \(\frac{109}{15}\) = \(\frac{1}{5}\) (Sacrifice)
Bâ€™s share = \(\frac{1}{3}\) – \(\frac{2}{5}\) = \(\frac{56}{15}\) – \(\frac{1}{15}\) (Gain)
Working Notes 2 : 201617 Profit Adjustment
Debited Profit to Aâ€™s Capital A/c = 90,000 X \(\frac{3}{5}\) (Sacrifice) = â‚¹ 6,000
Credited Profit to Bâ€™s Capital A/c = 90,000 X \(\frac{3}{5}\) (Sacrifice) = â‚¹ 6,000
Working Notes 3 : New Goodwill Evaluation
Goodwill = 201415 Profit + 201516 Profit
= 60,000 + 75,000 = â‚¹ 1,35,000
Working Notes 4 : Goodwill Adjustment Evaluation
Goodwill debited to Aâ€™s Capital A/c = 1,35,000 X \(\frac{1}{15}\) (Sacrifice) = â‚¹ 9,000
Goodwill credited to Aâ€™s Capital A/c = 1,35,000 X \(\frac{1}{15}\) (Gain) = â‚¹ 9,000
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 â‚¹ 25,000. As on 1st April, 2019, it was valued at â‚¹ 1,00,000. They decided to carry goodwill in the books of the firm.
Pass the Journal entry giving effect to the above.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

1st April 
Rajâ€™s Capital A/c 
Dr. 
7,500 

To Jaiâ€™s Capital A/c 
7,500 

(Goodwill adjustment) 
Working Notes 1: Gain or Sacrificing Ratio Evaluation
Sacrificing (or Gaining) Ratio = Old Ratio âˆ’ New Ratio
Jaiâ€™s share = \(\frac{3}{5}\) – \(\frac{1}{2}\) = \(\frac{1}{10}\) (Sacrifice)
Rajâ€™s share = \(\frac{2}{5}\) – \(\frac{1}{2}\) = \(\frac{1}{10}\) (Gain)
Working Notes 1: Adjusted Goodwill Evaluation
Adjusted Goodwill = 1,00,000 – 25,000 = 75,000
Goodwill credited to Jaiâ€™s Capital A/c = 75,000 X \(\frac{1}{10}\) (Sacrifice) = â‚¹ 7,500
Goodwill debited to Rajâ€™s Capital A/c = 75,000 X \(\frac{1}{10}\) (Sacrifice) = â‚¹ 7,500
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 â‚¹ 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.
Solution:
Journal 

Date

Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

1st April 
Profit & Loss A/c 
Dr. 
1,50,000 

To Xâ€™s Capital A/c 
90,000 

To Yâ€™s Capital A/c 
60,000 

(Balance adjusted in P&L A/c in old ratio) 
Working Notes: Profit & Loss Evaluation
Xâ€™s Share = 1,50,000 X \(\frac{3}{5}\) (Sacrifice) = â‚¹ 90,000
Yâ€™s Share = 1,50,000 X \(\frac{2}{5}\) (Sacrifice) = â‚¹ 60,000
Question 12
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 â‚¹ 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.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

1st April 
Aâ€™s Capital A/c 
Dr. 
80,000 

Bâ€™s Capital A/c 
Dr. 
20,000 

To Profit & Loss A/c 
1,00,000 

(Profit & Loss share) 
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 (â‚¹) 

General Reserve 
6,000 
Profit and Loss A/c (Credit) 
24,000 
Advertisement Suspense A/c 
12,000 
Pass an Adjustment Entry.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
Zâ€™s Capital A/c 
Dr. 
5,400 

To Xâ€™s Capital A/c 
5,400 

(Being adjustment for General Reserve, Profit and Loss A/c, and Advertisement Suspense A/c made on change in profit sharing ratio) 
Working Notes 1:
Adjustments to be made on Net amount = General Reserve + Profit and Loss A/c( Credit) – Advertisement Suspense A/c
Adjustments to be made on Net amount = 6,000 + 24,000 – 12,000 = â‚¹ 18,000
Working Notes 2: Gain or Sacrificing Ratio Evaluation
Old Ratio (X, Y and Z) = 5 : 3 : 2
New Ratio (X, Y and Z) = 2 : 3 : 5
Sacrificing (or Gaining) Ratio = Old Ratio âˆ’ New Ratio
Xâ€™s share = \(\frac{5}{10}\) – \(\frac{2}{10}\) = \(\frac{3}{10}\) (Sacrifice)
Yâ€™s share = \(\frac{3}{10}\) – \(\frac{3}{10}\) = 0
Zâ€™s share = \(\frac{2}{10}\) – \(\frac{5}{10}\) = \(\frac{3}{10}\) (Gain)
Credited amount to Xâ€™s Capital A/c = 18,000 X \(\frac{3}{10}\) (Sacrifice) = â‚¹ 5,400
Debited amount to Zâ€™s Capital A/c = 18,000 X \(\frac{3}{10}\) (Sacrifice) = â‚¹ 5,400
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 â‚¹ 1,20,000 at the time of change in profitsharing ratio, when:
(i) no information is given; (ii) there is no claim against it.
Solution:
Journal for case (i) & (ii) 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

Workmen Compensation Reserve A/c 
Dr. 
1,20,000 

To Aâ€™s Capital A/c 
60,000 

To Bâ€™s Capital A/c 
36,000 

To Câ€™s Capital A/c 
24,000 

(Distributed Workmen Compensation Reserve) 
Note:
In both cases, the distribution for workmen compensation reserve will be in old ratio 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 â‚¹ 1,20,000 at the time of change in profitsharing ratio, when there is a claim of â‚¹ 80,000 against it.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

Workmen Compensation Reserve A/c 
Dr. 
1,20,000 

To Xâ€™s Capital A/c 
20,000 

To Yâ€™s Capital A/c 
12,000 

To Zâ€™s Capital A/c 
8,000 

To Workmen Compensation Claim A/c (Balance adjustment in workmen compensation reserve A/c in old ratio) 
80,000 
Working Notes: Workmen Compensation Reserve Evaluation
Credited amount to Xâ€™s Capital A/c = 40,000 X \(\frac{5}{10}\) (Sacrifice) = â‚¹ 20,000
Credited amount to Xâ€™s Capital A/c = 40,000 X \(\frac{3}{10}\) (Sacrifice) = â‚¹ 12,000
Debited amount to Zâ€™s Capital A/c = 40,000 X \(\frac{2}{10}\) (Sacrifice) = â‚¹ 8,000
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 â‚¹ 1,20,000 in the Balance Sheet as of 31st March, 2019 and Workmen Compensation Claim is estimated at â‚¹ 1,50,000. Pass Journal entries for the accounting treatment of Workmen Compensation Reserve.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 

Workmen Compensation Reserve A/c 
Dr. 
1,20,000 

Revaluation A/c 
Dr. 
30,000 

To Provision for Workmen Compensation Claim A/c (Being provision created and shortfall charged to Revaluation A/c) 
1,50,000 

Xâ€™s Capital A/c 
Dr. 
15,000 

Yâ€™s Capital A/c 
Dr. 
9,000 

Zâ€™s Capital A/c 
Dr. 
6,000 

To Revaluation A/c 
30,000 

(Being revaluation loss transferred to Partnersâ€™ 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 â‚¹ 20,000 at the time of change in profitsharing ratio, when investment (market value â‚¹ 95,000) appears in the books at â‚¹ 1,00,000.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

Investment Fluctuation Reserve A/c 
Dr. 
5,000 

To Investments A/c 
5,000 

(Adjustment for investment value decrease) 

Investment Fluctuation Reserve A/c 
Dr. 
15,000 

To Aâ€™s Capital A/c 
7,500 

To Bâ€™s Capital A/c 
4,500 

To Câ€™s Capital A/c 
3,000 

(Balance adjustment in Investment Fluctuation Reserve A/c in old ratio) 
Working Notes: Investment Fluctuation Reserve Evaluation
Credited amount to Xâ€™s Capital A/c = 15,000 X \(\frac{5}{10}\) (Sacrifice) = â‚¹ 7,500
Credited amount to Xâ€™s Capital A/c = 15,000 X \(\frac{3}{10}\) (Sacrifice) = â‚¹ 4,500
Credited amount to Zâ€™s Capital A/c = 15,000 X \(\frac{2}{10}\) (Sacrifice) = â‚¹ 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, 2019. The extract of their Balance Sheet as at 31st March, 2019 is as follows:
Liabilities 
â‚¹ 
Assets 
â‚¹ 
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 â‚¹ 4,00,000;
(iii) When its Market Value is â‚¹ 4,24,000;
(iv) When its Market Value is â‚¹ 3,70,000;
(v) When its Market Value is â‚¹ 3,10,000.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credi â‚¹ 

(i) 
Investment Fluctuation Reserve A/c 
Dr. 
60,000 

To Nitinâ€™s Capital A/c 
20,000 

To Tarunâ€™s Capital A/c 
20,000 

To Amarâ€™s Capital A/c (Being distribution of Investment Fluctuation Reserve) 
20,000 

(ii) 
Investment Fluctuation Reserve A/c 
Dr. 
60,000 

To Nitinâ€™s Capital A/c 
20,000 

To Tarunâ€™s Capital A/c 
20,000 

To Amarâ€™s Capital A/c (Being distribution of Investment Fluctuation Reserve) 
20,000 

(iii) 
Investment Fluctuation Reserve A/c 
Dr. 
60,000 

To Nitinâ€™s Capital A/c 
20,000 

To Tarunâ€™s Capital A/c 
20,000 

To Amarâ€™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 Nitinâ€™s Capital A/c 
8,000 

To Tarunâ€™s Capital A/c 
8,000 

To Amarâ€™s Capital A/c 
8,000 

(Revaluation profit transferred to Partnersâ€™ Capital A/c) 

(iv) 
Investment Fluctuation Reserve A/c 
Dr. 
60,000 

To Investment A/c 
30,000 

To Nitinâ€™s Capital A/c 
10,000 

To Tarunâ€™s Capital A/c 
10,000 

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 (Decrease in investments set off against IFR and balance debited to Revaluation A/c) 
90,000 

Nitinâ€™s Capital A/c 
Dr. 
10,000 

Tarunâ€™s Capital A/c 
Dr. 
10,000 

Amarâ€™s Capital A/c 
Dr. 
10,000 

To Revaluation A/c 
30,000 

(Loss on revaluation transferred to Partnersâ€™ Capital A/c) 
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 â‚¹ 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.
Solution:
(i) If they do not want to show General Reserve in the new Balance Sheet
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
General Reserve A/c 
Dr. 
60,000 

To Xâ€™s Capital A/c 
40,000 

To Yâ€™s Capital A/c 
20,000 

(Being balance adjustment in General Reserve A/c in old ratio) 
Working Notes: General Reserve A/c Evaluation
Share of X = 60,000 X \(\frac{2}{3}\) (Sacrifice) = â‚¹ 40,000
Share of Y = 60,000 X \(\frac{1}{3}\) (Sacrifice) = â‚¹ 20,000
(ii) If they want to show General Reserve in the new Balance Sheet
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
Yâ€™s Capital A/c 
Dr. 
4,000 

To Xâ€™s Capital A/c 
4,000 

(Being balance adjustment in General Reserve A/c in sacrificing/gaining ratio) 
Working Notes 1 : General Reserve A/c in Sacrificing/Gaining Ratio Evaluation
Sacrificing Ratio = Old Ratio – New Ratio
Xâ€™s share = \(\frac{2}{3}\) – \(\frac{3}{5}\) = \(\frac{1}{15}\) (Sacrifice)
Yâ€™s share = \(\frac{1}{3}\) – \(\frac{2}{5}\) = – \(\frac{1}{15}\) (Gain)
Working Notes 2 : Compensation by Y to X Evaluation
Amount to be compensated = 60,000 X \(\frac{1}{15}\) = â‚¹ 4,000
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 
â‚¹ 
Assets 
â‚¹ 

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 â‚¹ 20,000.
(ii) Goodwill of the firm is valued at â‚¹ 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.
Solution:
Bhavya and Sakshi Journal 

Date 
Particulars 

L.F. 
Debit â‚¹ 
Credit â‚¹ 
31 March 
Investment Fluctuation Fund A/c 
Dr. 
20,000 

To Investments A/c 
10,000 

To Bhavyaâ€™s Capital A/c 
6,000 

To Sakshiâ€™s Capital A/c 
4,000 

(Being adjustment in the market value of investment and distributed excess amount) 

31 March 
Sakshiâ€™s Capital A/c (24,000Ã—1/10) 
Dr. 
2,400 

To Bhavyaâ€™s Capital A/c (24,000Ã—1/10) 
2,400 

(Being goodwill adjustment after profitsharing ratio change) 

31 March 
Sakshiâ€™s Capital A/c (23,400Ã—1/10) 
Dr. 
2,340 

To Bhavyaâ€™s Capital A/c (23,400Ã—1/10) 
2,340 

(Being general reserve adjustment not distributed) 
Working Notes:
Particulars 
Bhavya 
Sakshi 
Old Ratio 
3/5 
2/5 
New Ratio 
1/2 
1/2 
Gain/Sacrifice 
(3/5 â€“ 1/2)= 1/10 (Sacrifice) 
(2/5 â€“ 1/2)= (1/10) (Gain) 
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 â‚¹ 
Revised Values â‚¹ 

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 .
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
Zâ€™s Capital A/c 
Dr. 
760 

To Xâ€™s Capital A/c 
760 

(Adjustment of revaluation profit made) 
Working Notes 1: Net Profit or Loss Revaluation Evaluation
Particulars 
Amount â‚¹ 
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 Sundry Debtors 
(10,000) (Dr.) 
Decrease in Trade Creditors 
10,000 (Cr.) 
Profit on Revaluation 
7,600 (Cr.) 
Working Notes 2: 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
Xâ€™s share = \(\frac{5}{10}\) – \(\frac{4}{10}\) = \(\frac{1}{10}\) (Sacrifice)
Yâ€™s share = \(\frac{3}{10}\) – \(\frac{3}{10}\) = 0
Zâ€™s share = \(\frac{2}{10}\) – \(\frac{3}{10}\) = \(\frac{1}{10}\) (Gain)
Working Notes 3: Revaluation Profit Evaluation
Credited amount to X = 7,600 X \(\frac{1}{10}\) = â‚¹ 760
Credited amount to X = 7,600 X \(\frac{1}{10}\) = â‚¹ 760
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 
â‚¹ 
Assets 
â‚¹ 

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 
â€‹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 â‚¹ 1,25,000.
(ii) Value of machinery to be decreased by 10%.
(iii) Land and Building to be appreciated by â‚¹ 62,000.
(iv) Provision for Doubtful Debts to be made @ 5% on Sundry Debtors.
(v) Aakash was to carry out the reconstitution of the firm at a remuneration of â‚¹ 10,000.
Pass necessary Journal entries to give effect to the above.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
General Reserve A/c 
Dr. 
90,000 

To Ashishâ€™s Capital A/c 
30,000 

To Akashâ€™s Capital A/c 
30,000 

To Amitâ€™s Capital A/c 
30,000 

(Distributed Reserve) 

April 1 
Ashishâ€™s Capital A/c 
Dr. 
2,000 

Akashâ€™s Capital A/c 
Dr. 
2,000 

Amitâ€™s Capital A/c 
Dr. 
2,000 

To Advertisement Suspense A/c (Distributed Advertisement Suspense) 
6,000 

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 Akashâ€™s Capital A/c (Remuneration) (Revalued Assets) 
10,000 

April 1 
Land & Building A/c 
Dr. 
62,000 

To Revaluation A/c 
62,000 

(Revalued Assets) 

April 1 
Revaluation A/c 
Dr. 
8,000 

To Ashishâ€™s Capital A/c 
2,666 

To Akashâ€™s Capital A/c 
2,666 

To Amitâ€™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, 2019 stood as follows:
Liabilities 
Amount â‚¹ 
Assets 
Amount â‚¹ 

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 
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 has increased by 5%.
(iii) A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
(iv) A Motorcycle valued at â‚¹ 20,000 was unrecorded and is now to be recorded in the books.
(v) Out of Sundry Creditors, â‚¹ 10,000 is not payable.
(vi) Goodwill is to be valued at 2 years’ purchase of last 3 years profits. Profits being for 201819 âˆ’ â‚¹ 50,000 (Loss); 201718 âˆ’ â‚¹ 2,50,000 and 201617 âˆ’ â‚¹ 2,50,000.
(vii) C was to carry out the work for reconstituting the firm at a remuneration (including expenses) of â‚¹ 5,000. Expenses came to â‚¹ 3,000.
Pass Journal entries and prepare Revaluation Account.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

April 1 
General Reserve A/c 
Dr. 
60,000 

To Aâ€™s Capital A/c 
30,000 

To Bâ€™s Capital A/c 
18,000 

To Câ€™s Capital A/c 
12,000 

(Distributed Reserve) 

Aâ€™s Capital A/c 
Dr 
2,500 

Bâ€™s Capital A/c 
Dr. 
1,500 

Câ€™s Capital A/c 
Dr. 
1,000 

To Advertisement Suspense A/c 
5,000 

(Distributed Advertisement Suspense) 

Investment Fluctuation Reserve A/c 
Dr. 
30,000 

To Investment A/c 
10,000 

To Aâ€™s Capital A/c 
10,000 

To Bâ€™s Capital A/c 
6,000 

To Câ€™s Capital A/c 
4,000 

(Distributed Investment Fluctuation Reserve) 

Machinery A/c 
Dr. 
12,000 

Motorcycle A/c 
Dr. 
20,000 

Creditors A/c 
Dr. 
10,000 

To Revaluation A/c (Revalued Assets) 
42,000 

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) (Revalued Assets) 
5,000 

Revaluation A/c 
17,000 

To Aâ€™s Capital A/c 
8,500 

To Bâ€™s Capital A/c 
5,100 

To C â€™s Capital A/c 
3,400 

(Being Profit on revaluation transferred to Partnersâ€™ Capital A/c) 

Bâ€™s Capital A/c 
Dr. 
10,000 

C â€™s Capital A/c 
Dr. 
40,000 

To Aâ€™s Capital A/c (Adjusted Goodwill) 
Revaluation A/c 

Dr. 
Cr. 

Particulars 
Amount (â‚¹) 
Particulars 
Amount (â‚¹) 

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

Provision for Doubtful Debts A/c 
2,500 
Motorcycle 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 Note 1: Sacrificing or Gaining Ratio
Old Ratio (A:B:C) = 5:3:2
New Ratio (A:B:C) = 1:1:1
Sacrificing or Gaining Ratio = Old Ratio – New Ratio
Aâ€™s share = \(\frac{5}{10}\) – \(\frac{1}{3}\) = \(\frac{1510}{30}\) = \(\frac{5}{30}\) (Sacrifice)
Bâ€™s share = \(\frac{3}{10}\) – \(\frac{1}{3}\) = \(\frac{910}{30}\) = \(\frac{1}{30}\) (Gain)
Câ€™s share = \(\frac{2}{10}\) – \(\frac{1}{3}\) = \(\frac{610}{30}\) = \(\frac{4}{30}\) (Gain)
Working Notes 2: Goodwill Evaluation
Goodwill = Average Profit X No. of Years Purchased
= 1,50,000 X 3 = 3,00,000
Working Notes 3: Goodwill Adjustment Evaluation
Credited amount to A = 3,00,000 X \(\frac{5}{30}\) = â‚¹ 50,000
Debited amount to B = 3,00,000 X \(\frac{1}{30}\) = â‚¹ 10,000
Debited amount to C = 3,00,000 X \(\frac{4}{30}\) = â‚¹ 40,000
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:
â€‹
Book values (â‚¹) 
Revised values (â‚¹) 

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.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit â‚¹ 
Credit â‚¹ 

2019 

April 1 
Aâ€™s Capital A/c (30,000X \(\frac{1}{10}\) = 3,000 
Dr. 
3,000 

To Bâ€™s Capital A/c 
3,000 

(Being entry adjustment for change in ratio) 

Working Note 1: Sacrificing or Gaining Ratio
Old Ratio (A:B:C) = 2:2:1
New Ratio (A:B:C) = 5:3:2
Sacrificing or Gaining Ratio = Old Ratio – New Ratio
Aâ€™s share = \(\frac{2}{5}\) – \(\frac{5}{10}\) = – \(\frac{45}{10}\) = \(\frac{1}{10}\) (Gain)
Bâ€™s share = \(\frac{2}{5}\) – \(\frac{3}{10}\) = \(\frac{43}{10}\) = \(\frac{1}{10}\) (Sacrifice)
Câ€™s share = \(\frac{1}{5}\) – \(\frac{2}{10}\) = \(\frac{22}{10}\) = 0
Question 25
â€‹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 
â‚¹ 
Assets 
â‚¹ 

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, the goodwill of the firm was valued at â‚¹ 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.
Solution:
Journal 

Date 
Particulars 
L.F. 
Debit Amount (â‚¹) 
Credit Amount (â‚¹) 

April 1 
Xâ€™s Capital A/c 
Dr. 
15,000 

Yâ€™s Capital A/c 
Dr. 
5,000 

To Zâ€™s Capital A/c 
20,000 

(Goodwill, General Reserve and Profit and Loss Account Adjustment made on change in profit sharing ratio) 

Balance Sheet as on April 1st, 2019 

Liabilities 
â‚¹ 
Assets 
â‚¹ 

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 Note 1: Sacrificing or Gaining Ratio
Old Ratio (X:Y:Z) = 7:5:4
New Ratio (X:Y:Z) = 3:2:1
Sacrificing or Gaining Ratio = Old Ratio – New Ratio
Xâ€™s share = \(\frac{7}{16}\) – \(\frac{3}{6}\) = – \(\frac{2124}{48}\) = \(\frac{3}{48}\) (Gain)
Yâ€™s share = \(\frac{5}{16}\) – \(\frac{2}{6}\) = \(\frac{1516}{48}\) = \(\frac{1}{48}\) (Gain)
Zâ€™s share = \(\frac{4}{16}\) – \(\frac{1}{16}\) = \(\frac{128}{48}\) = \(\frac{4}{48}\) (Sacrifice)
Working Note 2: Reserve , Profit & Loss, Goodwill Adjustment
Total amount adjusted = Reserve + Profit & Loss + Goodwill Adjustment
= 65,000 + 25,000 + 1,50,000 = â‚¹ 2,40,000
Debited amount to Xâ€™s Capital = 2,40,000 X \(\frac{3}{48}\) = â‚¹ 15,000
Debited amount to Yâ€™s Capital = 2,40,000 X \(\frac{1}{48}\) = â‚¹ 5,000
Credited amount to Zâ€™s Capital = 2,40,000 X \(\frac{4}{48}\) = â‚¹ 20,000
Working Note 3:
Partnersâ€™ Capital Accounts 

Dr. 
Cr. 

Particulars 
X 
Y 
Z 
Particulars 
X 
Y 
Z 
Z’s Capital A/c 
15,000 
5,000 
â€“ 
Balance b/d 
2,10,000 
1,50,000 
1,20,000 
X’s Capital A/c 
â€“ 
â€“ 
15,000 

Y’s Capital A/c 
â€“ 
â€“ 
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 
Important Topics in Accountancy: 