12th | Change in Profit Sharing Ratio Among the Existing Partner | Question No. 26 To 30 | Ts Grewal Solution 2023-2024

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

(ii) That investments (having a book value of `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)

 

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
2023	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

A, B and C are sharing profits and losses in the ratio of 2 : 2 : 1. They decided to share profit w.e.f. 1st April, 2023 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.

Journal
Date	Particulars		L.F.	Debit  ( `)	Credit  ( `)
2023
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

 

 Ajeet, Vijeet and Sujeet are partners in a firm sharing profits and losses in the ratio of 5:3:2.They decide to share profits and losses in the ratio of 2:5:3 with effect from 1st April, 2023. Land (having book value of Rs. 1,00,000) was found undervalued by 2,50,000 and stock (having book value of ? 4,00,000) was found overvalued by 3,00,000.

Pass the necessary adjusting entry without affecting the existing book value.

Journal
Date	Particulars		L.F.	Debit    `	Credit    `
April 1	Ajeet's Capital A/c	Dr.		15,000
	To Vijeet's Capital A/c				10,000
	To Sujeet's Capital A/c				5,000
	(Being accumulated profits, losses and reserves without affecting)

 

 

. Rajesh and Mahesh are partners in a firm sharing profit in the ratio of 3: 2. Their Balance Sheet as at 31st March, 2023 was as follows:

Liabilities	Rs.	Assets	Rs.
Rajesh's Capital A/c	54,000	Cash	18,000
Mahesh's Capital A/c	36,000	Machinery	36,000
Creditors	36,000	Building	72,000
	1,26,000		1,26,000

Goodwill of the firm is valued at 36,000 and the building at Rs. 90,000 on 31st March, 2023. The partners decide to share profits equally with effect from 1st April, 2023.

Pass the necessary accounting entries without affecting the existing figure of building.

Journal
Date	Particulars		L.F.	Debit    `	Credit    `
	Mahesh's Capital A/c	Dr.		3,600
	To Rajesh's Capital A/c				3,600
	(Being Goodwill is Raised)
	Mahesh's Capital A/c	Dr.		1,800
	To Rajesh's Capital A/c				1,800
	(Being Goodwill is written off)

 

Working note:

1. Calculation of Gaining and Sacrificing Ratio

Rajesh's sacrifice = Old Profit Share - New Profit Share = 3/5 - 1/2 = 1/10

Mahesh's gain = New Profit Share - Old Profit Share = 1/2 - 2/5 = 1/10

 

2. Valued Goodwill adjusted

Share in Goodwill = 36,000×1/10=3,600

 

3. For Appreciation in Value of Building: 90,000-72,000=18,000

Share = 18,000×1/10=1,800

 

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.

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