Question

X, Y and Z are partners sharing profits and losses in the ratio of 6 : 3 : 1. They admitted W into partnership with effect from 1st April, 2019. New profit-sharing ratio between X, Y, Z and W was agreed to be 3 : 3 : 3 : 1. They also decide to record the effect of the following revaluations without affecting the book values of the assets and liabilities by passing an adjustment entry:

	Book Values (₹)	Revised Values (₹)
Plant and Machinery	3,50,000	3,40,000
Land and Building	5,00,000	5,50,000
Trade Creditors	1,00,000	90,000
Outstanding Expenses	85,000	1,00,000

Pass necessary adjustment entry.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	Z’s Capital A/c	Dr.		7,000
	W’s Capital A/c	Dr.		3,500
	To X’s Capital A/c				10,500
	(Adjustment entry made)

Working Notes:

WN 1: Gain/Loss on Revaluation

Gain/Loss = Land & Building + Trade Creditors − Plant & Machinery − Outstanding Expenses
Gain/Loss = 50,000 + 10,000 − 10,000 − 15,000 = 35,000

WN2: Calculation of Sacrifice or Gain

$\begin{array}{l}\text{X :Y : Z = 6:3:1 (Old Ratio)}\\ \text{X :Y :Z :W = 3:3:3:1 (New Ratio)}\\ \text{Sacrificing (or Gaining) ratio = Old Ratio - New Ratio}\\ \text{X's share =}\frac{6}{10}-\frac{3}{10}=\frac{6-3}{10}=\frac{3}{10}\text{\hspace{0.17em}(Sacrifice)}\\ \text{Y's share =}\frac{3}{10}-\frac{3}{10}=\frac{3-3}{10}=0\\ \text{Z's share =}\frac{1}{10}-\frac{3}{10}=\frac{1-3}{10}=-\frac{2}{10}\text{(Gain)}\\ \text{W's share =}\frac{1}{10}\text{\hspace{0.17em}(Gain)}\end{array}$

WN 3: Adjustment of Revaluation Profit
$\begin{array}{l}\text{Amount credited in X's Capital A/c = 35,000}\times \frac{3}{10}=\text{\hspace{0.17em}Rs 10,500}\\ \text{Amount debited in Z's Capital A/c = 35,000}\times \frac{2}{10}=\text{\hspace{0.17em}Rs 7,000}\\ \text{Amount debited in W's Capital A/c = 35,000}\times \frac{1}{10}=\text{\hspace{0.17em}Rs 3,500}\end{array}$