Question 09 Chapter 4 of +2-A
9. A and B are partners in a firm sharing profits in the ratio of 2: 1. They decided with effect from 1st April 2018, that they would share profits in the ratio of 3: 2. But, this decision was taken after the profit for the year ended 31st March 2019 of 90,000 was distributed in the old ratio.
Firm’s goodwill was valued on the basis of the aggregate of two years’ profits preceding the date decision became effective.
The profits for the year ended 31st March 2017 and 2018 were 60,000 and 75,000 respectively. It was decided that Goodwill Account will not be opened in the books of the firm and necessary adjustment be made through Capital Accounts which on 31st March 2019 stood at 1,50,000 for A and 90,000 for B. Pass necessary Journal entries and prepare Capital Accounts.
| Old Ratio of A & B | = | 2: 1 |
| New Ratio of A & B | = | 3:2 |
Calculate the Sacrificing or Gaining Ratio of Partners
Sacrificing or Gaining Ratio = Old Ratio - New Ratio
| A's Sacrificing/Gaining share | = | 2 | - | 3 |
| 3 | 5 |
| = | 10 - 9 |
| 15 |
| = | 1 | (Sacrificing) |
| 15 |
| A's Sacrificing/Gaining share | = | 1 | - | 2 |
| 3 | 5 |
| = | 5 - 6 |
| 15 |
| = | - 1 | Gaining |
| 15 |
Adjustment of profit for the year March 2019: -
| Amount of Profit Credited to A's Capital | = | 90,000 | X | 1 |
| 15 | ||||
| = | 6,000 |
| Amount of Profit Credited to B's Capital | = | 90,000 | X | 1 |
| 15 | ||||
| = | 6,000 |
Calculation of Goodwill: -
Goodwill = Profit of 2017 + Profit of 2018
= 60,000 + 75,000
= 1,35,000
Adjustment of Goodwill: -
| Amount of Goodwill Debited to A's Capital | = | 1,35,000 | X | 1 |
| 15 | ||||
| = | 9,000 |
| Amount of Goodwill Credited to B's Capital | = | 1,35,000 | X | 1 |
| 15 | ||||
| = | 9,000 |
In the Books of _______________
| Date | Particulars |
L.F. | Debit | Credit | |
|---|---|---|---|---|---|
| 2019 | |||||
| April 1 | A's Capital A/c | Dr | 6,000 | ||
| To B's Capital A/c | 10,000 | ||||
| (Being profit for 2019 adjusted with sacrificing share) | |||||
| April 1 | B's Capital A/c | Dr | 9,000 | ||
| To A's Capital A/c | 9,000 | ||||
| (Being amount of goodwill adjusted through a capital account) | |||||
Partners’ Capital Accounts for the year ended 31st March 2019
| Particulars |
A |
B | Particulars |
A | B |
|---|---|---|---|---|---|
| To B's Capital A/c | 6,000 | - | By Balance B/d | 1,50,000 | 90,000 |
| To A's Capital a/c | - | 9,000 | By A's Capital A/c | - | 6,000 |
| By B's Capital A/c | 9,000 | - | |||
| To Balance c/d | 1,53,000 | 87,000 | |||
| 1,59,000 | 96,000 | 1,59,000 | 96,000 |
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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