X, Y and Z are partners in a firm sharing profits and losses as 5 : 4 : 3 . Their Balance Sheet as at 31st March, 2018 was :

Liabilities

₹

Assets

₹

Sundry Creditors 40,000 Cash at Bank 40,000

Outstanding Expenses 15,000 Sundry Debtors 2,10,000

General Reserve 75,000 Stock 3,00,000

Capital A/cs: Furniture 60,000

X 4,00,000 Plant and Machinery 4,20,000

Y

3,00,000

Z

2,00,000

9,00,000

10,30,000

10,30,000

From 1st April, 2018, they agree to alter their profit-sharing ratio as 4 : 3 : 2 .It is also decided that :
(a) Furniture be taken at 80% of its value .
(b) Stock be appreciated by 20%.
(c) Plant and Machinery be valued at ₹ 4,00,000.
(d) Outstanding Expenses be increased by ₹ 13,000.
Partners agreed that altered values are not to be recorded in the books and they also do not want to distribute the General Reserve .
You are required to pass a single journal entry to give effect to the above . Also, prepare Balance Sheet of the new firm.

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Solution

Journal

Date
2018

Particulars

L.F.

Debit

Amount

Rs

Credit

Amount

Rs

X's Capital A/c

Dr.

2,500

April 1

To Z's Capital A/c

2,500

(Revaluation Profit and General Reserve adjusted on change in profit sharing ratio)

Balance Sheet
as on 01st April, 2018

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

40,000

Cash at Bank

40,000

Outstanding Expenses

15,000

Sundry Debtors

2,10,000

General Reserve

75,000

Stock

3,00,000

Capital Accounts:

Furniture

60,000

X

3,97,500

Plant and Machinery

4,20,000

Y

3,00,000

Z

2,02,500

9,00,000

10,30,000

10,30,000

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 4 : 3

New Ratio (X, Y and Z) = 4 : 3 : 2

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Calculation of Profit or Loss on Revaluation

Particulars

Amount
(Rs)

Increase in Stock

60,000

(Cr.)

Decrease Furniture

(12,000)

(Dr.)

Decrease in Plant and Machinery

(20,000)

(Dr.)

Increase in Outstanding Expenses

(13,000)

(Dr.)

Profit on Revaluation

15,000

(Cr.)

WN 3 Adjustment of Profit on Revaluation and General Reserve

Amount for Adjustment = Profit on Revaluation + General Reserve
= 15,000 + 75,000 = Rs 90,000

WN 4

Partners’ Capital Accounts

Dr.

Cr.

Particulars

X

Y

Z

Particulars

X

Y

Z

Z's Capital A/c

2,500

–

–

Balance c/d

4,00,000

3,00,000

2,00,000

X's Capital A/c

–

–

2,500

Balance c/d

3,97,500

3,00,000

2,02,500

4,00,000

3,00,000

2,02,500

4,00,000

3,00,000

2,02,500

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Q. X, Y and Z are partners in a firm sharing profits and losses as 5 : 4 : 3. Their Balance Sheet as at 31st March, 2019 was:


Liabilities		Amount (₹)	Assets	Amount (₹)
Sundry Creditors		40,000	Cash at Bank	40,000
Outstanding Expenses		15,000	Sundry Debtors	2,10,000
General Reserve		75,000	Stock	3,00,000
Capital A/cs:			Furniture	60,000
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Y	3,00,000
Z	2,00,000	9,00,000
		10,30,000		10,30,000

From 1st April, 2019, they agree to alter their profit-sharing ratio as 4 : 3 : 2. It is also decided that:
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(d) Outstanding Expenses be increased by ₹ 13,000.
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General Reserve	23,400	Land and Building	56,000
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(i) Investments to be valued at ₹ 20,000.
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Capital A/cs:			Sundry Assets	7,00,000
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Y	1,50,000
Z	1,20,000	4,80,000
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Creditors		1,30,000

		7,00,000		7,00,000

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Liabilities		₹	Assets	₹
Sundry Creditors		28,000	Cash	20,000
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Journal
Date 2018	Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	X's Capital A/c	Dr.		2,500
April 1	To Z's Capital A/c				2,500
	(Revaluation Profit and General Reserve adjusted on change in profit sharing ratio)

Balance Sheet as on 01st April, 2018
Liabilities		Amount Rs	Assets	Amount Rs
Sundry Creditors		40,000	Cash at Bank	40,000
Outstanding Expenses		15,000	Sundry Debtors	2,10,000
General Reserve		75,000	Stock	3,00,000
Capital Accounts:			Furniture	60,000
X	3,97,500		Plant and Machinery	4,20,000
Y	3,00,000
Z	2,02,500	9,00,000
		10,30,000		10,30,000

Particulars	Amount (Rs)
Increase in Stock	60,000	(Cr.)
Decrease Furniture	(12,000)	(Dr.)
Decrease in Plant and Machinery	(20,000)	(Dr.)
Increase in Outstanding Expenses	(13,000)	(Dr.)
Profit on Revaluation	15,000	(Cr.)

Partners’ Capital Accounts
Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Z's Capital A/c	2,500	–	–	Balance c/d	4,00,000	3,00,000	2,00,000
				X's Capital A/c	–	–	2,500
Balance c/d	3,97,500	3,00,000	2,02,500
	4,00,000	3,00,000	2,02,500		4,00,000	3,00,000	2,02,500