Change in Profit Sharing Ratio.pdf667877

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1. Agrawal Institute
Change in Profit Sharing
Ratio

2. Change in Profit Sharing Ratio
It means reconstitution of firm.
The partner whose share of profit decreases due to change in
profit sharing ratio is known as Sacrificing Partner.
The partner whose share of profit increases due to change in
profit sharing ratio is known as Gaining Partner.

3. Sacrificing & Gaining Ratio
Old Ratio –New Ratio = -ve(Gaining Ratio)
Old Ratio –New Ratio= +ve(Sacrificing Ratio)
Eg: Old Ratio 3 : 2 : 1 New Ratio 2 : 2 : 1

4. # X, Y, Z , W are 4 : 3 : 2 : 1 partners. W acquires
1
5
from Y. Find new ratio.

5. # X, Y, Z are equal partners. Z acquires
1
5
of X. Find new ratio.

6. # A, B, C, D , E are 1 : 2 : 3 : 4 : 5 partners. A acquires
1
5
of D and B acquires
1
10
from C & E in the ratio 3 : 2. Find new ratio.

7. # Pranav, Karan and Rahim are partners sharing profits and losses in agreed ratio.
With effect from 1st April, 2023, they agreed to share profit in the ratio of 3 : 3 : 4.
To arrive at the new ratio, Rahim takes 1/5
th
share equally from Pranav and Karan.
Calculate the old profit-sharing ratio.
[Ans.: OldRatio2 : 2 : 1.]

8. Treatment of Goodwill
* Existing Goodwill * Non Existing Goodwill
Partner’s Capital/ Current A/c Dr. ***
(old ratio)
To Goodwill A/c***
(Being Goodwill written off)
Gaining Partner’s Capital A/c Dr. ***
To Sacrificing Partner’s Capital A/c***
(Being Goodwill adjusted among partners)

10. # A, B and C are partners sharing profits and losses in the ratio of 5 : 4 : 1. It was
decided that with effect from 1st April, 2021 the profit-sharing ratio will be 9 : 6 : 5.
Goodwill is to be valued at 2 year's purchase of average of 3 year's profits. The
profits for 2018-19, 2019-20 and 2020-21 were ₹ 48,000, ₹ 42,000 and ₹ 60,000
respectively.
Pass the necessary journal entry for the treatmentofgoodwill.

11. # Ram, Laxman and Bharat who were sharing profits and losses in the ratio of
5 : 3 : 2, decide to share profits and losses equally with effect from 1st April, 2023.
Goodwill of the firm is valued at ₹ 4,50,000. Goodwill is appearing in the books is
₹ 75,000.
Pass necessary Journal entries to record the above change.

12. Treatment of Free Reserves
{ Eg: General Reserve, Contingency Reserve, P&L A/c (Cr. Balance), Revenue
Reserve, Accumulated Profits }
{ Partners want to distribute the reserve }
Free Reserves A/c Dr.***
To Partner’s Capital/ Current A/c***
(old ratio)
(Being Reserves distributed)
{Partners don't want to distribute the reserve}
Gaining Partner’s Capital A/c Dr. ***
To Sacrificing Partner’s Capital A/c***
(Being Reserve adjusted among partners)

13. Treatment of Fictitious Assets
{ Eg: Advertisement Suspense A/c, Deferred Revenue Expenditure, Accumulated
Losses, P&L A/c (Dr. Balance)}
{Partners do not want to distribute the
fictitious assets}
Sacrificing Partner’s Capital A/c Dr. ***
To Gaining Partner’s Capital A/c***
(Being Fictitious Asset adjusted among
partners)
{Partners want to distribute the fictitious
assets}
Partner’s Capital/ Current A/c Dr. ***
(old ratio)
To Fictitious Asset A/c***
(Being Fictious Asset written off)

14. # Babita, Kavita and Dinesh were partners in a firm. From 1st April, 2018 they
decided to share the profits in the ratio of 2 : 3 : 5. On this date the Balance Sheet of
the firm showed a balance of ₹ 60,000 in Contingency Reserve and debit balance of
₹ 1,20,000 in Profit and Loss Account. The Goodwill of the firm was valued at
₹ 3,60,000.
Pass necessary journal entries for the above transactions in the books of the firm.
Also show your workings clearly.

15. Revaluation of Assets and Liabilities
Revaluation Account
Particular ₹ Particular ₹
To Decrease in value of assets
To Increase in value of liabilities
To Unrecorded liabilities
………
………
………
By Increase in value of assets
By Decrease in value of liabilities
By Unrecorded assets
………
………
………
***** *****
Bal. Fig. Bal. Fig.To Gain on Revaluation By Loss on Revaluation

16. Case -1
Partners want to show revised (new)
values of assets & liabilities in
Revised Balance Sheet.
Case -2
Partners do not want to show revised
(new) values.
Gain on Revaluation
Revaluation A/c Dr. ***
To Partner’s Capital A/c ***
(being gain distributed among partners)
Loss on Revaluation
Partner’s Capital A/c Dr. ***
To Revaluation A/c ***
(being loss distributed among partners)
* In old ratio
Gain on Revaluation
Gaining Partner Capital A/c Dr. ***
To Sacrificing Partner’s Capital A/c ***
(being gain adjusted among partners)
Loss on Revaluation
Sacrificing Partner’s Capital A/c Dr. ***
To Gaining Partner Capital A/c ***
(being loss adjusted among partners)

18. Workmen’s Compensation Reserve (WCR)
Case 1 –No claim against WCR :
WCR A/c Dr. ****
To partner’s Capital A/c****
Case 2 –Claim is lower than the amount of WCR :
WCR A/c Dr. ****
To WCL A/c ****
To partner’s Capital A/c****
Case 3 –Claim is more than the amount of WCR :
WCR A/c Dr. ****
Revaluation A/c Dr. ****
To WCL ****

23. Investment Fluctuation Reserve (IFR)