12th | Change in Profit Sharing Ratio Among Existing Partner | Question No. 21 To 25 | Ts Grewal Solution 2025-2026

Bootstrap and Davy Jones are partners sharing profits in the ratio of 2:1. On 31st March, 2025, their Balance Sheet showed General Reserve of ₹ 60,000. It was decided that in future they will share profits and losses in the ratio of 3 : 2. Pass necessary Journal entry in each of the following alternative cases:
(i) When General Reserve is not to be shown in the new Balance Sheet.
(ii) When General Reserve is to be shown in the new Balance Sheet.

(i) If they do not want to show General Reserve in the new Balance Sheet

Journal
Date	Particulars		L.F.	Debit  (₹)	Credit  (₹)
2025 April 1	General Reserve A/c	Dr.		60,000
	To Amar’s Capital A/c				40,000
	To Akhar’s Capital A/c				20,000
	(Being Adjustment of balance in General Reserve A/c in old ratio)

Working Notes:

WN1Calculation of Share of General Reserve

Amar's share=60,000×2/3=40,000

Akhar's share=60,000×1/3=20,000
 

(ii) If they want to show General Reserve in the new Balance Sheet

Journal
Date	Particulars		L.F.	Debit  (₹)	Credit  (₹)
2025 April 1	Akhar’s Capital A/c	Dr.		4,000
	To Amar’s Capital A/c				4,000
	(Being Adjustment of balance in General Reserve A/c in sacrificing/gaining ratio)

Working Notes:

WN1Calculation of Gain/Sacrfice

Sacrificing Ratio=Old Ratio-New Ratio

Amar=2/3-3/5=1/15(sacrifice)

Akhar=1/3-2/5=-1/15(gain)

WN2 Calculation of Compensation by Akhar to Amar

Amount to be compensated=60,000×1/15=4,000
 

Goodwill was valued at ₹4,80,000. Pass the necessary Journal entries for the above transactions in the books of the firm on its reconstitution.

(CBSE 2019)

Journal
Particulars		L.F.	Debit  (₹)	Credit  (₹)
Mitha’s Capital A/c Gopal’s Capital A/c Farhan’s Capital A/c    To Advertisement expenses a/c (BeingAdvertisement expenses  A/c written off  in old ratio)	Dr. Dr. Dr.		15,000 10,000 5,000         9,000             16,000	30,000           4,500 3,000 1,500       16,000
Contingency reserve a/c	Dr.
To   Mitha’s Capital A/c   To Gopal’s Capital A/c   To  Farhan’s Capital A/c (Being Contingency reserve A/c distributed in old ratio)
Farhan’s Capital A/c   To Gopal’s Capital A/c (Being capital of gainer and sacrificer’s capital a/c adjusted with their share of goodwill in gaining and sacrificing ratio)	Dr.

 

WN-1

	Mita	Gopal	Farhan
Old ratio	3	:       2	:     1
New ratio	5	:       3	:      2

Mita = 3/6-5/10=30-30/60=0/60

Gopal =2/6-3/10=20-18/60=2/60(Scrifice)

Farhan=1/6-2/10=10-12/60=-2/60(Gain)

Goodwill of the firm=-4,80,000

Share of Gapal =4,80,000×2/60=₹16,000

Share of Farhan =4,80,000×2/60=₹16,000

WN-2

Adjustment of deferred advertisement expenditure and contingency reserve

Advertisement expenditure to be written off / debited (in old ratio 3;2;1)

Mita = 30,000×3/6 =15,000

Gopal = 30,000×2/6 =10,000

Farhan = 30,000×1/6 = 5,000

Contingency reserve to beCredited (in old ratio 3;2;1)

Mita = 9,000×3/6 =4,500

Gopal = 9,000×2/6 =3,000

Farhan = 9,000×1/6 = 1,500

 X Yand Z are sharing profits and losses in the ratio of 5:3:2. They decide to share future profits and losses in the ratio of 2:3:5 with effect from 1st April, 2025. They also decide to record the effect of the following accumulated profits, losses and reserves without affecting their book values by passing a single entry.

	Book Values (Rs.)
General Reserve	6,000
Profit & Loss A/c (Credit)	24,000
Advertisement Suspense A/c	12,000

Pass an Adjustment Entry.

 

Journal
Date	Particulars		L.F.	Debit ₹	Credit ₹
April 1	Z’s Capital A/c	Dr.		5,400
	To X's Capital A/c				5,400
	(Being accumulated profits, losses and reserves without affecting)

 

 

Bhavya and Sakshi are partners in a firm, sharing profits and losses in the ratio of 3:2. On 31st March, 2018 their Balance Sheet was as under:

BALANCE SHEET OF BHAVYA AND SAKSHI as at 31st March, 2018
Liabilities		(₹)	Assets	(₹)
Sundry Creditors		13,800	Furniture	16,000
General Reserve		23,400	Land and Building	56,000
Investment Fluctuation Fund		20,000	Investments	30,000
Bhavya's Capital		50,000	Trade Receivables	18,500
Sakshi's Capital		40,000	Cash in Hand	26,700
		1,47,200		1,47,200

The partners have decided to change their profit sharing ratio to 1 : 1 with immediate effect. For the purpose, they decided that:
(i) Investments to be valued at ₹ 20,000.
(ii) Goodwill of the firm be valued at ₹ 24,000.
(iii) General Reserve not to be distributed between the partners.
You are required to pass necessary Journal entries in the books of the firm. Show workings.

In the books of Bhavya and Sakshi Journal
Date	Particulars		L.F.	Debit (₹)	Credit (₹)
2018
March 31	Investment Fluctuation Fund A/c	Dr.		20,000
	To Investments A/c				10,000
	To Bhavya’s Capital A/c				6,000
	To Sakshi’s Capital A/c				4,000
	(Being depreciation in the value of investment provided for and excess amount distributed)
March 31	Sakshi’s Capital A/c (24,000×1/10)	Dr.		2,400
	To Bhavya’s Capital A/c (24,000×1/10)				2,400
	(Being adjustment for goodwill due to change in profit-sharing ratio)
March 31	Sakshi’s Capital A/c (23,400×1/10)	Dr.		2,340
	To Bhavya’s Capital A/c (23,400×1/10)				2,340
	(Being adjustment for general reserve not distributed)

Working Notes:

Particulars	Bhavya	Sakshi
Old Ratio	3/5	2/5
New Ratio	1/2	1/2
Gain/Sacrifice	(3/5 – 1/2)= 1/10 (Sacrifice)	(2/5 – 1/2)= (-1/10) (Gain)

 

(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 10%.

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

Journal
Date	Particulars		L.F.	Debit  (₹)	Credit  (₹)
2024	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)
	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 accumulated Profit 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