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12th | Change in Profit-Sharing Ratio Among the Existing Partner | Question No.  21 To 25 |  Ts Grewal Solution 2022-2023

Question 21:


 Karim, Rehman and Navel are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as at 31st March, 2022 stood as follows:

 

Liabilities

 ( `)

Assets

( `)

Capital A/cs:

 

Land and Building

3,50,000

 Karim

2,50,000

 

Machinery

2,40,000

 Rehman

2,50,000

 

Computers

70,000

 Navel

2,00,000

7,00,000

Investments (Market value  ` 90,000)

1,00,000

General Reserve

 

60,000

Sundry Debtors

50,000

Investments Fluctuation Reserve

 

30,000

Cash in Hand

10,000

Sundry Creditors

 

90,000

Cash at Bank

55,000

 

 

 

Advertisement Suspense

5,000

 

 

8,80,000

 

8,80,000

 

 

 

 

 


They decided to share profits equally w.e.f. 1st April, 2022. They also agreed that:
(i) Value of Land and Building be decreased by 5%.
(ii) Value of Machinery be increased by 5%.
(iii) A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
(iv) A Motor Cycle valued at  ` 20,000 was unrecorded and is now to be recorded in the books.
(v) Out of Sundry Creditors,  ` 10,000 is not payable.
(vi) Goodwill is to be valued at 2 years' purchase of last 3 years profits. Profits being for 2022  ` 50,000 (Loss); 2021 −
 ` 2,50,000 and 2020−  ` 2,50,000.
(vii) Navel was to carry out the work for reconstituting the firm at a remuneration (including expenses) of  ` 5,000. Expenses came to  ` 3,000.
Pass Journal entries and prepare Revaluation Account.

Answer:


Journal

Date

Particulars

L.F.

Debit

 ( `)

Credit

 ( `)

2022

 

 

 

 

 

April 1

General Reserve A/c

Dr.

 

60,000

 

 

      To Karim’s Capital A/c

 

 

 

30,000

 

      To Rehman’s Capital A/c

 

 

 

18,000

 

      To Navel’s Capital A/c

 

 

 

12,000

 

(Being Reserve distributed)

 

 

 

 

 

 

 

 

 

 

 

Karim’s Capital A/c

Dr

 

2,500

 

 

Rehman’s Capital A/c

Dr.

 

1,500

 

 

Navel’s Capital A/c

Dr.

 

1,000

 

 

     To Advertisement Suspense A/c

 

 

 

5,000

 

(Being Advertisement Suspense distributed)

 

 

 

 

 

 

 

 

 

 

 

Investment Fluctuation Reserve A/c

Dr.

 

30,000

 

 

   To Investment A/c

 

 

 

10,000

 

   To A’s Capital A/c

 

 

 

10,000

 

   To B’s Capital A/c

 

 

 

6,000

 

   To C’s Capital A/c

 

 

 

4,000

 

(Being Investment Fluctuation Reserve distributed)

 

 

 

 

 

 

 

 

 

 

 

Machinery A/c

Dr.

 

12,000

 

 

Motor Cycle  A/c

Dr.

 

20,000

 

 

Creditors  A/c

Dr.

 

10,000

 

 

     To Revaluation A/c

 

 

 

42,000

 

(Being Assets revalued)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

 

 

25,000

 

 

     To Land & Building A/c

 

 

 

17,500

 

     To Provision for Doubtful Debts A/c

 

 

 

2,500

 

     To Bank A/c (Remuneration)

 

 

 

5,000

 

(Being Assets revalued)

 

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

 

 

17,000

 

 

 To Karim’s Capital A/c

 

 

 

8,500

 

To Rehman’s Capital A/c

 

 

 

5,100

 

To Navel’s Capital A/c

 

 

 

3,400

 

(Being Profit on revaluation transferred to Partners’ Capital A/c)

 

 

 

 

 

 

 

 

 

 

 

Rehman’s Capital A/c

Dr.

 

10,000

 

 

Navel’s Capital A/c

Dr.

 

40,000

 

 

     To Karim’s Capital A/c

 

 

 

50,000

 

(Being Goodwill adjusted)

 

 

 

 

 

 

 

 

 

 

Revaluation A/c

 

Dr.

 

Cr.

Particulars

 ( `)

Particulars

 ( `)

 

Land & Building A/c

17,500

Machinery A/c

   12,000

 

Provision for Doubtful Debts A/c

2,500

Motor Cycle  A/c

20,000

 

Bank A/c (Remuneration)

5,000

Creditors  A/c

10,000

 

Profit transferred to:

 

 

 

 

Karim’s Capital A/c

8,500

 

 

 

 

Rehman’s Capital A/c

5,100

 

 

 

 

Navel’s Capital A/c

3,400

17,000

 

 

 

 

42,000

 

42,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Calculation of sacrifice or gain

Karim:Rehman: Navel=5:3:2(Old Ratio)

Karim:Rehman: Navel =1:1:1(New Ratio)

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

Karim's share=5/10−1/3=15−10/30=5/30(Sacrifice)

Rehman's share=3/10−1/3=9−10/30=−1/30(Gain)

Navel 's share=2/10−1/3=6−10/30=−4/30(Gain)

WN2: Valuation of Goodwill

Goodwill=Average Profit×No. of years' Purchase               

   =1,50,000×2= ` 3,00,000

WN3: Adjustment of Goodwill
Amount credited to Karim's Capital A/c=3,00,000×5/30=
` 50,000

Amount debited to Rehman's Capital A/c=3,00,000×1/30= ` 10,000

Amount debited to Navel's Capital A/c=3,00,000×4/30= ` 40,000

Question 22: Hari, Kunal and Uma are partners in a firm sharing profits and losses in the ratio of 5 :3: 2. From 1st April, 2018 they decided to share future profits and losses in the ratio of 2:5:3.Their Balance Sheet showed a balance of 75,000 in the Profit and Loss Account and a balance of `15,000 in Investment Fluctuation Fund. For this purpose, it was agreed that:


(i) Goodwill of the firm was valued at `3,00,000.

(ii) That investments (having a book value of R 50,000) were valued at `35,000.

(iii) That stock having a book value of `50,000 be depreciated by 109%.

Pass the necessary Journal entries for the above in the books of the firm. (CBSE 2019)

 

Answer;


Journal

Date

Particulars

L.F.

Debit

 ( `)

Credit

 ( `)

2022

Kunal’s Capital A/c 

Dr

 

 60,000 30,000 

  

 

 

90,000

 

Uma’s Capital A/c

Dr.

 

 

 To Hari’s Capital A/c

 

 

 

(Being Goodwill adjusted)

 

 

 

 

 

 

 

 

15,000

 

 

 

 

15,000

 

 

Investment Fluctuation Reserve A/c

Dr.

 

 

     To Investment A/c

 

 

 

(Being decrease in the value of investment, adjusted in Investment Fluctuation Reserve)

 

 

 

 

 

 

 

 

 

Revaluation  A/c

Dr.

 

5,000

 

 

   To Stock A/c

 

 

 

5,000

 

(Being decrease in the value of Stock debited in revaluation a/c)

 

 

 

 

 

 

 

 

 

 

 

Machinery A/c

Dr.

 

12,000

 

 

Motor Cycle  A/c

Dr.

 

20,000

 

 

Creditors  A/c

Dr.

 

10,000

 

 

     To Revaluation A/c

 

 

 

42,000

 

(Being Assets revalued)

 

 

 

 

 

Profit and loss a/c

 Dr.

 

75,000

 

 

      To Hari’s Capital A/c

 

 

 

37,500

 

      To Kunal’s Capital A/c

 

 

 

22,100

 

      To Uma’s Capital A/c

 

 

 

15,000

 

(Being Profit on revaluation transferred to Partners’ Capital A/c)

 

 

 

 

 

Hari’s Capital A/c

Dr.

 

2,500 

 

 

Kunal’s Capital A/c

Dr.

 

1,500

 

 

Uma’s Capital A/c

Dr.

 

1,000

 

 

   To Revaluation A/c

 

 

 

5,000

 

(Being loss of revaluation a/c is debited to partners’ capital a/c )

 

 

 

 

 

 

 

 

 

Working notes;

 Old ratio  = Hari : Kunal : Uma = 5:3:2

New ratio  = Hari : Kunal : Uma = 2:5:3

Sacrificing ratio = Old ratio-new ratio

Hari= 5/10-2/10=5-2/10=3/10 (Sacrifice)

Kunal= 3/10-5/10=3-5/10= -2/10 (gain)

Uma= 2/10-3/10=2-3/10= -1/10 (gain)

Treatment of goodwill

Goodwill of the firm 3,00,000

Share of Hari= 3,00000×3/10 =90,000

Share of Kunal= 3,00,000×2/10 =60,000

Share of Uma= 3,00,000 ×1/10 =30,000

Question 23:


AB and C are sharing profits and losses in the ratio of 2 : 2 : 1. They decided to share profit w.e.f. 1st April, 2022 in the ratio of 5 : 3 : 2. They also decided not to change the values of assets and liabilities in the books of account. The book values and revised values of assets and liabilities as on the date of change were as follows:
 

 

Book values

( `)

 Revised values ( `)

Machinery

2,50,000

3,00,000

Computers

2,00,000

1,75,000

Sundry Creditors

90,000

75,000

Outstanding Expenses

15,000

25,000


Pass an adjustment entry.

Answer:


Journal

Date

Particulars

L.F.

Debit

 ( `)

Credit

 ( `)

2022

 

 

 

 

 

April 1

A’s Capital A/c (30,000×110=3,000)

Dr.

 

3,000

 

 

    To B’s Capital A/c

 

 

 

3,000

 

(Being Adjustment entry made for change in ratio)

 

 

 

 

 

 

 

 

 

 

 

Working Notes:

WN1: Calculation of Sacrifice or Gain

A:B:C=2:2:1(Old Ratio)

A:B:C=5:3:2(New Ratio)

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

A's share=2/5−5/10=4−5/10=−1/10(Gain)

B's share=2/5−3/10=4−3/10=1/10(Sacrifice)

C's share=1/5−2/10=2−2/10=0

WN2: Calculation of Profit or Loss on Revaluation

Revaluation A/c

Dr.

 

Cr.

Particulars

 ( `)

Particulars

 ( `)

Computers A/c

25,000

Machinery A/c

50,000

Outstanding expenses A/c

10,000

Creditors A/c

15,000

Profit on Revaluation

30,000

 

 

 

 

 

 

 

65,000

 

65,000

 

 

 

 

 

Question 24: A, B and C were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Their Balance Sheet as on 31st March, 2015 was as follows:


 

 

Liabilities

 ( `)

Assets

( `)

Creditors

50,000

Land

50,000

Bills Payable

20,000

Building

50,000

General Reserve

30,000

Plant

1,00,000

Capital A/cs:

 

Stock

40,000

 A

1,00,000

 

Debtors

30,000

 B

50,000

 

Bank

5,000

 C 

25,000

1,75,000

 

 

 

2,75,000

 

2,75,000

 

 

 

 


  From 1st April, 2015, A, B and C decided to share profits equally. For this it was agreed that:
(i) Goodwill of the firm will be valued at 
` 1,50,000.
(ii) Land will be revalued at  ` 80,000 and building be depreciated by 6%.
(iii) Creditors of  ` 6,000 were not likely to be claimed and hence should be written off.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm.

Answer:


Revaluation Account

Dr.

Cr.

Particulars

 ( `)

Particulars

 ( `)

Building A/c

3,000

Land A/c

30,000

Revaluation Profit

 

Creditors A/c

6,000

A

16,500

 

 

 

B

11,000

 

 

 

C

5,500

33,000

 

 

 

 

 

 

 

36,000

 

36,000

 

 

 

 

 

Partners’ Capital Account

Dr.

Cr.

Particulars

A

B

C

Particulars

A

B

C

A’s Capital A/c

-

-

25,000

Balance b/d

1,00,000

50,000

25,000

Balance c/d

1,56,500

71,000

10,500

R/v Profit

16,500

11,000

5,500

 

 

 

 

General Reserve

15,000

10,000

5,000

 

 

 

 

C’s Capital A/c

25,000

-

-

 

1,56,500

71,000

35,500

 

1,56,500

71,000

35,500

 

 

 

 

 

 

 

 

 

 

Balance Sheet

as on March 31, 2015 

Liabilities

 ( `)

Assets

 ( `)

Capital A/c

 

Land

50,000

 

A

1,56,500

 

Add: Increase

30,000

80,000

B

71,000

 

Building

50,000

 

C

10,500

2,38,000

Less: Dep.

3,000

47,000

 

 

Plant

1,00,000

Creditors

50,000

 

Bank

5,000

Less: Written-off

6,000

44,000

Stock

40,000

Bills Payable

20,000

Debtors

30,000

 

 

 

 

 

3,02,000

 

3,02,000

 

 

 

 

 

Working Notes

 

A's share=3/6−1/3 = 1/6 (Sacrifice)

B's share=2/6−1/3 =  Nil

C's share=1/6−1/3 = -1/6 (Gain)

C will compensate by passing an entry

                           

C’s capital a/c

         To A’s capital a/c

Dr.                              

25,000

 

 

25,000

 

Question 25:


Balance Sheet of X and Y, who share profits and losses as 5 : 3, as at 1st April, 2022 is:

 

Liabilities

( `)

Assets

( `)

X's Capital

52,000

Goodwill

8,000

Y's Capital

54,000

Machinery

38,000

General Reserve

4,800

Furniture

15,000

Sundry Creditors

5,000

Sundry Debtors

33,000

Employees' Provident Fund

1,000

Stock

7,000

Workmen Compensation Reserve

10,000

Bank

25,000

 

 

Advertisement Suspense A/c

     800

 

 

 

 

 

1,26,800

 

1,26,800

   

   

 

 


On the above date, they decided to change their profit-sharing ratio to 3 : 5 and agreed upon the following:
(a) Goodwill be valued on the basis of two years' purchase of the average profit of the last three years. Profits for the years ended 31st March, are: 2020  ` 7,500; 2021 −
 ` 4,000; 2022 −  ` 6,500.
(b) Machinery and Stock be revalued at  ` 45,000 and 
` 8,000 respectively.
(c) Claim on account of workmen compensation is  ` 6,000.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.

Answer:


Revaluation Account

Dr.

Cr.

Particulars

 ( `)

Particulars

 ( `)

Profit transferred to:

 

Machinery

7,000

X’s Capital A/c

5,000

 

Stock

1,000

Y’s Capital A/c

3,000

8,000

 

 

 

8,000

 

8,000

 

 

 

 

 

 

Partners’ Capital Account

Dr.

Cr.

Particulars

X

Y

Particulars

X

Y

Advertisement Suspense A/c

500

300

Balance b/d

52,000

54,000

Goodwill A/c

5,000

3,000

General Reserve A/c

3,000

1,800

X’s Capital

3,000

WCF

2,500

1,500

(Adjustment of Goodwill)

 

 

Revaluation A/c (Profit)

5,000

3,000

 

 

 

Y’s Capital A/c

3,000

Balance c/d

60,000

54,000

(Adjustment of Goodwill)

 

 

 

 

 

 

 

 

 

65,500

60,300

 

65,500

60,300

 

 

 

 

 

 

 

Balance Sheet

as on April 01, 2022 (after Change in Profit Sharing Ratio)

Liabilities

( `)

Assets

      ( `)

X’s Capital

58,500

Machinery

(38,000 + 7,000)

45,000

Z’s Capital

55,500

Furniture

15,000

Sundry Creditors

5,000

Sundry Debtors

33,000

Employees’ Provident Fund

1,000

Stock (7,000 + 1,000)

8,000

Workmen’s Compensation Reserve

6,000

Bank

25,000

 

1,26,000

 

1,26,000

 

 

 

 

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X and Y) = 5 : 3

New Ratio (X and Y) = 3 : 5

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

X's share=5/8−3/8=2/8 (Sacrifice)

Y's share=3/8−5/8=−2/8 (Gain)

 

WN 2 Calculation of New Goodwill

Goodwill = Average Profit × Number of Years Purchase = 6,000 × 2 =  ` 12,000

Average profit= 7,500+4,000+6,500/3=6,000

Goodwill = 6,000 × 2 =  ` 12,000

WN 3 Adjustment of Goodwill

Amount to be debited to X’s capital=12,000×2/8 =3,000

Amount to be debited to Y’s capital=12,000×2/8 =3,000

 

Journal

Date

Particulars

L.F.

Debit

 ( `)

Credit

 ( `)

 

Workmen’s Compensation Reserve A/c

Dr.

 

10,000

 

 

To Workmen’s Compensation Claim A/c

 

 

6,000

 

To X’s Capital A/c

 

 

2,500

 

To Y’s Capital A/c

 

 

1,500

 

(Being Workmen’s compensation claim distributed among partners in their old ratio i.e. 5 : 3)

 

 

 

 

 

 

 

 

 

X’s Capital A/c

Dr.

 

5,000

 

 

Y’s Capital A/c

Dr.

 

3,000

 

 

To Goodwill A/c

 

 

8,000

 

(Being Goodwill written off among partners in their old ratio)

 

 

 

 

 

 

 

 

 

X’s Capital A/c

Dr.

 

500

 

 

Y’s Capital A/c

Dr.

 

300

 

 

To Advertisement Suspense A/c

 

 

800

 

(Being Advertisement Suspense written off among partners in their old ratio)

 

 

 

 

 

 

 

 

 

General Reserve A/c

Dr.

 

4,800

 

 

To X’s Capital A/c

 

 

3,000

 

To Y’s Capital A/c

 

 

1,800

 

(Being General Reserve distributed among partners in their old ratio)

 

 

 

 

 

 

 

 

 

Revaluation A/c

Dr.

 

8,000

 

 

To X’s Capital A/c

 

 

5,000

 

To Y’s Capital A/c

 

 

3,000

 

(Being Revaluation profit distributed among partners in their old ratio)

 

 

 

 

 

 

 

 

 

Y’s Capital A/c

Dr.

 

3,000

 

 

To X’s Capital A/c

 

 

3,000

 

(Being Adjustment of goodwill made)

 

 

 

 

 

 

 

 

 

Ts Grewal Solution 2022-2023

Click below for more Questions

Class 12 / Volume – I

Chapter 1 – Change in Profit-Sharing Ratio Among the Existing Partner

 

Question No. 1 To 5
Question No. 5 To 10
Question No. 11 To 15
Question No. 16 To 20
Question No. 21 To 25
Question No. 26 To 27

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12th TS Grewal’s Accountancy Solutions

Ts Grewal Solution 2022-2023

Ts Grewal Solution 2021-2022

Ts Grewal Solution 2020-2021