Accountancy 2
Accountancy 2
Accountancy 2
1
WorkingMotes
Goinonfhce of Partier
Anil Harnesh
Sunil
tlew Profit Share 1/3 1/3
old Proft Share 5/10 3/10 2/10
13 1 1 2 4
Difference
3 10 3 10 30 3 10 30
Sacrificing artrner GainingPartner Gaining Partner
Illustration 9.
Harry, Porter and Ali are partners in a firm sharing profit and losses in the raio
5:3:2. They decide to change their profit-sharing ratio with effect from 1st April, 2023
entry is recorded for
Due to change in profit-sharing ratio, following Journal
of goodwill: adjustmem
JOURNAL
LF. Dr.()
Date Particulars
2023
..Dr. 6,000
April 1| Porter's Capital A/c 1,80,000 x1/30)
Ali's Capital A/c ( 1,80,000 x 4/30) .Dr. 24,000
To Harry's Capital A/c 1,80,000 x5/30) 30,00
(Adjustment made for goodwillon change in profitsharing ratio)
What will be the new profit-sharing ratio of Harry, Porter and Ali?
Solution: New Profit Share = Old Profit Share - Profit Share sacrificed or
+ Profit Share acquired
5 5 15-5 10
Harry's New Profit Share =
10 30 30 30
3 1 9+1 10
Porter's New Profit Share = +
10 30 30 30
New profit-sharing ratio of Harry, Porter and Ali will be 10/30 : 10/30 : 10/30 or 1:1:1
2023
1 General Reserve A/c .Dr. 1,00,000
April
To Akhil's Capital Ac 50,000
To Bikram's Capital A/c 30,000
Example 2
They
Vivek, Anil and Raman are partners in a firm sharing profits in the ratio of 5:3: 2.
decided to share profits, in the ratio of 2:3:5 w.ef., 1st April, 2023. On the date of change
agreed by
in profit-sharing ratio, the firm had balance in General Reserve of ? 1,00,000. It was
Compensation
the partners that out of General Reserve 50,000 be transferred to Workmen
Reserve to meet a claim of workers, if any.
Pass the Journal entry for distributing General Reserve on change in profit-sharing ratio.
3.14 Double Entry Book Keeping-CBSt Xl
JOURNAL
Solution: LF.
Date
Dr. )
ParticularsS
2023 ..Dr.
April 1 General Reserve A/c 1,00,000
lo Workmen Compensation Reserve A/C
To Viveks Capital AC
To Anil's apital A/c
To Raman's Capital A/C
profit-sharing
(General Reserve distributed among partners in their old Reserve) 109 0
ratioafter transferring 50.000 to Workmen Compensation
Solution: JOURNAL
Particulars
LF. Dr. () Cr. )
Date
2023
April
Case 1 Workmen Compensation Reserve A/c .Dr. 90,000
To Ram's Capital A/c 40,000
30,000
To Shyam's Capital A/c
20,000
To Mohan's Capital A/c
(Transfer of Workmen Compensation Reserve to Partners' Capital
Accounts in their old profit-sharing ratio)
Case 2 Same entry as given in Case 1.
..Dr. 90,000
Case 3 Workmen Compensation Reserve A/c
45,000
To Workmen Compensation Claim A/c
20,000
To Ram's Capital A/c
15,000
To Shyam's Capital A/c
10,000
To Mohan's Capital A/c
(Transfer of surplus Workmen Compensation Reserve to Partners' Capital
Accounts in their old profit-sharing ratio)
3.16 Double EntryBook Keeping-CBSE XII
Case Workmen Compensation Reserve AC ..Dr.
.Dr.
90,000
Revaluation A/c 9,000
To Workmen Compensation Claim A/c
(Shortfall debited to Revaluation Account) 99 00
Ram's Capital A/c ...Dr.
4,000
Shyam's Capital A/C ...Dr.
3,000
Mohan's Capital A/C .Dr. 2,000
To Revaluation A/c
Revaluation A/c
.Dr. 18,000
To Gourav's Capital A/c
8,00
To Sourav's Capital A/c
6,00
To Kabir's Capital Ac
4,00
(Transfer of gain (profit) on revaluation)
Case 5| Investments Fluctuation Reserve A/c .Dr. 18,000
Revaluation A/c
..Dr. 9,000
To Investments AC
27,0
(Fall in value of investments adjusted through Investments
Fluctuation Reserve and shorttall charged to Revaluation Account)
Gourav's Capital A/c
.Dr. 4,000
Sourav's Capital A/c
..Dr. 3,000
Kabir's Capital A/c
..Dr. 2,000
To Revaluation A/c 9.000
Transfer of loss on revaluation to Partners' Capital Accounts
in the old profit-sharing ratio)
*|t is assumed that market value of investments is 2.00.000
3.19
ExistingPartners
Chapter 3- Change in Profit-Sharing| RatioAmongthe
Illustration 12.
Hardeep and Sandeep are partners sharing profits in the ratio of 4: 1. They decide to share
profits equally w.e.f. 1st April, 2023. Their Balance Sheet as at 31st March, 2023 shows a
balance of advertisement suspense of 20,000. Passthe Journalentry at the time of change
in profit-sharing ratio.
Solution: JOURNAL
2023
1| Hardeep's Capital A/c ...Dr. 16,000
April
Sandeep's Capital A/c .Dr. 4,000
To Advertisement Suspense A/c 20,000
(Advertisement Suspense Account written off)
REMEMBER
1. Reserves, Accumulated Profits and Losses are distributed even if the question is silent.
2. Workmen Compensation Reserve is a reserve set aside out of proñt to meet the liability towards workmen, if
any, that may arise.
3. Investments Fluctuation Reserve is a reserve set aside out of profit to meet the fall in value of Investments, ie.
when Market Value of Investment is lower than its Book Value.
4. Deferred Revenue Expenditure is arevenue expenditure written off in more than one accounting period. It being
afhctitious asset is transferred to the debit of Partners' Capital Accounts in their old profit-sharing ratio at the
time of change in proht-sharing ratio.
Illustration
X, Yand Z14. are partners sharing profits and losses in the ratio of 5:3 :2. They decide to
2023
effect from 1st April,
share profits and losses in the ratio
1S the extract of their Balance
of 2:3:5 with
Sheet as at 31st March, 2025: Folowing
Liabilities
General Reserve
Assets
75,000 Advertisement
Suspense A/c -(ä
Profit &Loss A/c 37,500
Workmen Compensation Reserve 12,500
Illustration 15.
5:3:2
Samiksha, Ash and Divya were partners in a firm sharing profits and losses in the ratio of
With efect from 1st April, 2019, they agreed to share future profits and losses in the ratio of
2.5:3.TheirBalance Sheet showed a debit balance of 50,000 in theProfit & Loss Account and
a balanceof T40,000 in the Investment Fluctuation Fund. For this purpose, it was agreed that.
() Goodwill of the firm be valued at 3,00,000.
(ii) Investments of book value of ? 5,00,000 be valued att4.80.000.
Pass the necessary Journal entries to record the above transactions in the books of the firm.
(CBSE2020)
Chapter 3- Change in Profit-Sharing Ratio Among the Existing Partners 3.21
Solution: JOURNAL
Date Particulars
LF. Dr. () Cr. )
2019
April 1 Samiksha's Capital A/c
..Dr. 25,000
Ash's Capital A/c ...Dr. 15,000
Divya's Capital A/c ..Dr. 10,000
To Profit &Loss A/c
50,000
(Undistributed loss transferred to Partners' Capital Accounts in
their old profit-sharing ratio)
Investment Fluctuation Fund A/c .Dr. 40,000
To Investment A/c 20,000
To Samiksha's Capital A/c 10,000
To Ash's Capital A/c 6,000
To Divya's Capital A/c 4,000
(Investments Fluctuation Fund distributed to Partners' Capital Accounts
after meeting the decrease in the value of investments in their old profit
sharing ratio)
Ash's Ca[ital A/c ...Dr. 60,000
Divya's Capital A/c .Dr. 30,000
To Samiksha's Capital A/c 90,000
(Adjustment entry made for goodwill) (WN 1and 2)
Working Notes:
1. Calculation of Gain/Sacrifice ofpartner:
Sacrificed Share = Old Profit Share - New Profit Share
5 2 3
Samiksha = (Sacrifice)
10 10 10
3 5 2
Ash = =
(i.e, a Gain)
10 10 10
3
Divya = (i.e., a Gain)
10 10 (10
2
2. Compensation payable by Ash to Samiksha= 3,00,000 X =60,000
10
1
Compensation payable by Divya to Samiksha =3,00,000 x =730,000.
10
Adjustment of Reserves, Accumulated Profits and Losses through Partners' Capital Accounts,
i.e, When the existing balances are to be retained in the Books
The partners may decide that existing balances of Profit & Loss Account or Reserve be
continued to exist at the same amount in the Balance Sheet of the reconstituted firm.
However, the partners are entitled to their share in these balances of Profit & Loss
Account and reserves and also should bear their share in losses, if any.
Therefore, to give effect, an entry for the net effect of reserves, accumulated profits
and losses is passed since they were earned in the past, i.e., before the date of change
in profit-sharing ratio. The adjustment entry is passed through the Partners' Capital/
Current Accounts. The gained or sacrificed profit share of each partner is calculated
3.22 Double Entry Book
Keeping-CBSE X
dajustment entry for the amount is passed on the basis of gained or Sacrfices
profit share. This is, because at present, the partners are entitled to share
profits and losses in the old profit-sharing ratio whereas in future they will Such
CO Snare such reserves. profits and losses in the new proht-sharing ratio. be
For
reSeenrivteesd
Passing an adjustment entry, following steps are taken:
Step 1: Calculate the Net Effect of Reserves, Accumulated Profits and Losses.
srep 2: alculate Gained/Sacrificed Profit Share of each partner.
Step 3: Calculate share of Gaining Partner and Sacrificing Partner in the amount
in Step 1.
For Gaining Partner = Net Effect x Gained Profit Share determined
For Sacrificing Partner = Net Effect x Sacrificed Profit Share.
Step 4: Pass the following Adjusting Journal Entry:
In case of Positive Effect (Net Proft): Gaining Partners' Capital/Current* A/Cs
..Dr,
To Sacrificing Partners' Capital/Current" A/cs
In case of Negative Effect (Net Loss): Sacrifcing Partners' Capital/Current" A/cs .Dr.
To Gaining Partners' Capital/Current A/cs
*In case of Fixed Capitals.
Illustration 16.
Aan, Baan and Shaan are partners in a firm sharing profits in the ratio of 3:3:2The
decided to share profits equally w.e.f. 1st April, 2023. On that date, General Reserve had
credit balance of 72,000. Instead of distributing the General Reserve, it was decided to
record an adjustment entry giving effect due to the change in the profit-sharing ratio,
Pass Journal entry to give effect to the same.
Solution: JOURNAL
Date Particulars LLF. Dr. ) Cr.)
2023
April 1 Shaan's Capital A/c ...Dr. 6,000
To Aan's Capital AC 3,000
To Baan's Capital A/c 3,00
(Adjustment of General Reserve because of change in the proft-sharing ratio)
Working Note: Calculation of sacrificed/(gained) profit share of partrners due to change in profht-sharing ratio:
Aan Baan Shaan
(i) Old Profit Share 3/8 3/8 2/8
(iü) New Profit Share 1/3 1/3 1/3
(ii) Sacrificed/(Gained) Profit Share [(i) - ()) 1/24 (Sacrifice) -2/24 (Gain)
1/24 (Sacrifice)
fromtheir
Due to change in profit-sharing ratio, Shaan has gained 2/24th. Aan and Baan sacrificed 1/24th each
General
profit shares. Hencé, Capital Accounts of Aan and Baan are credited each by 1/24th of the balance in
Reserve, ie., 1/24 x?72,000 = *3,000 each and Shaan's Capital Account is debited by 6.000.
Chapter 3. Change in Profit-Sharing Ratio Among the Existing Partners 3.23
Illustration 17.
Karim, Saleem and Rahim are sharing profits and losses in the ratio of 5 : 3:2 1neY
decide to share profits and losses in the ratio of 2:3:5 with effect from 1st April, 2023
They also decide to record the effect of the following without affecting their book values:
Book Values ()
(i) General Reseryve 1,50,000
Calculation of Share of sacrificing and gaining partner in the net amount of reserves and losses:
For Karim = 200,000 ×3/10 = 60,000; For Rahim = 2,00,000 x 3/10 = 60,000.
ADJUSTMENT ENTRY
2023
1 Prateek's Capital A/c .Dr. 25,000
April 25,000
To Vinay's Capital A/c
Adiustment made for accumulated profits, losses and reserve)
profit-
Calculate each partner's gain or sacrifice due to change in profit-sharing ratio and old
sharing ratio.