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 Rs. $90,000$ 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 Rs. $60,000$ and Rs. $75,000$ 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 $31st$ $stood,atRs.$1,50,000$forAandRs.$90,000$ for B. Pass necessary Journal entries and prepare Capital Accounts.

Answer 1

journal Entries

Date	Particulars		Amount(Dr.)	Amount(Cr.)
31 MAR	A's Capital A/c	Dr.	6000
	To B's Capital A/c			6000
	(Being adjustment made for profit)
31 Mar	B's Capital a/c		9000
	To A's Capital a/c (Being adjustment for goodwill made)			9000

Partner's Capital a/c

Date	Particulars	A	B	Date	Particulars	A	B
31 Mar	To B's Capital a/c	6000		31 Mar	By bal b/d	150000	90000
31 Mar	To A's Capital a/c		9000	31 Mar	By A's Capital a/c		6000
31 Mar	To Bal c/d	153000	870000	31 Mar	By B's Capital A/c	9000
		159000	96000			159000	96000

Working Notes:

1. The share of profit as per the old ratio:

A = 90000 X (2/3) = 60000

B = 90000 X (1/3) = 30000

The share as per new ratio:

A = 90000 X (3/5) = 54000

B = 90000 X (2/5) = 36000

2. Goodwill = Average Profit x Years of purchase

= 67500 x 2

= 135000

Average Profit = (60000 + 75000)/ 2 = 67500

3. A: 3/5 - 2/3 = (1/15) Sacrificing ratio

B : 1/15 gaining ratio