Question

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:

BALANCE SHEET OF BHAVYA AND SAKSHI
as at 31st March, 2018

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.

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Answer 1

In the books of Bhavya and Sakshi Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
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 profit-sharing 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)