Question

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 1

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

$$\begin{gathered} \mathrm{Goodwill}=\mathrm{Profit}\mathrm{of}2014-15+\mathrm{Profit}\mathrm{of}2015-16 \\ =60,000+75,000=\mathrm{Rs}1,35,000 \end{gathered}$$

WN 4 Adjustment of Goodwill