Change in Profit Sharing Ratio
Change in Profit Sharing Ratio
Change in Profit Sharing Ratio
Note : In case any goodwill is appearing in the books then this goodwill is to
be written off because the fresh valuation of goodwill is made due to change
of profit sharing ratio. If existing goodwill is not written off, it will lead to an
accounting of goodwill twice up to the extent of existing goodwill.
The following entry is to be made:
(i) Entries to write off goodwill appearing in the books(Old Balance Sheet):
All partners’ capital/current A/Cs…Dr (in the old ratio) XX
To Goodwill A/c (with the existing value of goodwill) XX
(ii)Entries to adjust goodwill share gained:
Gaining a partner’s capital/current A/Cs----------Dr. XX
To sacrificing partner’s capital/ current A/Cs XX
PROBLEM-4: K, P and S are partners sharing profit and losses in the ratio 5:
2 : 1, decided to share future profit in the ratio 1:2:5 from 1st. Apr. 2022. They
decided to record the effect of the following items without affecting their book
value, by passing single adjustment entry.
i) General Reserve Rs. 40,000
ii) Profit and Loss A/C (Dr balance) Rs. 16,000
iii) Defered Revenue Expenses A/c Rs. 8,000
Soln.
Journal entries:
S’s Capital A/C -------Dr. 12,000
To P’s Capital A/C 12,000
(Being net accumulated profit compensated by S to P)
PROBLEM-5:
X & Y are partners sharing profits in 4 : 3 ratio. Their Balance Sheet as on
31st.Mar.2022 was as follows :
They agreed to share profit in 1: 1 ratio from 1st. April 2022 with the
following terms:
i) Building is to be appreciated by Rs.7,000 and Plant depreciated by
Rs.3,000.
ii) The provision for debtors to be raised from Rs. 300 to Rs.800.
iii) The total goodwill of the firm is valued at Rs.28,000. The goodwill will
not to be shown in new balance sheet. They decided to keep their capital Rs.
80,000 each as per new ratio. Any shortage or surplus they brought in or paid
cash accordingly.
Prepare: (a) Revaluation A/C
(b) Partners’ Capital A/C
(c) Balance Sheet after reconstitution.
Soln.
1.Revaluation Account:
Dr. Cr.
Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Plant A/c 3,000 By Building A/c 7,000
To Provision for bad debt A/c
To Partners’capital A/c 500
X- 2,000
Y- 1,500 3,500
(profit distributed)
7,000 7,000
Soln.
2.Partners’ Capital Account:
Dr. Cr.
Particulars X Y Particulars X Y
(Rs.) (Rs.) (Rs.) (Rs.)
To X’s capital A/c 2,000 By Balance b/d 70,000 70,000
By General Reserve
A/c 4,000 3,000
By Revaluation A/C 2,000 1,500
By Y’s Capital A/c 2,000
To Balance c/d 76,000 74,500
78,000 74,500 78,000 74,500
By Balance b/d 76,000 74.500
To Balance c/d 80,000 80,000 By Cash A/C 4,000 5,500
3.Balance Sheet
as at 1st.Apr.2022
Liabilities Amount Assets Amount
(Rs.) (Rs.)
Sundry Creditors 23,000 Cash 11,300
Capitals : Bank 13,000
X 80,000 Debtors 30,500
Y 80,000 1,60,000 Less : Provision for
bad debt 800 29,700
Stock 25,000
Plant 37,000
Building 67,000
1,83,000 1,83,000