Q.No.31 | Chapter 4 – Change in Profit-Sharing Ratio Among the Exiting Partners | T.S. Grewal 12 Class Book Keeping Part - A - Vol. 1

Question 31 Chapter 4 of +2-A

31. Suresh, Ramesh, Mahesh and Ganesh were partners in a firm Sharing profits in the ratio of 2 : 2 : 3 : 3. On 1st April, 2016, their Balance Sheet was as follows:

Liabilities			Assets
Capital A/cs:			Fixed Assets	6,00,000
Suresh	1,00,000		Current Assets	3,45,000
Ramesh	1,50,000
Mahesh	2,00,000
Ganesh	2,50,000	7,00,000
Workmen Compensation Reserve		75,000
		9,45,000		9,45,000

From the above date, the partners decided to share the future profits equally. For this purpose the goodwill of the firm was valued at 90,000. It was also agreed that:

1. Claim against Workmen Compensation Reserve will be estimated at 1,00,000 and fixed assets will be depreciated by 10%.
2. The Capital of the partners will be adjusted according to the new profit-Sharing ratio. For this, necessary cash will be brought or paid by the partners as the case may be.
   Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the reconstituted firm.

The solution of Question 31 Chapter 4 of +2-A

Revaluation A/c

Particulars		Amount	Particulars		Amount
To Depreciation on Fixed Assets A/c		60,000	By Profit on Revaluation*1		85,000
To Prov. for Claim against WCF A/c		25,000	Suresh’s Capital A/c	17,000
			Ramesh’s Capital A/c	17,000
			Mahesh’s Capital A/c	25,500
			Ganesh’s Capital A/c	25,500
		85,000			85,000

 

Partners’ Capital Accounts

Particulars	Suresh	Ramesh	Mahesh	Ganesh
To Revaluation A/c	17,000	17,000	25,500	25,500
To Mahesh's Capita A/c *2	2,250	2,250
To Ganesh's Capital A/c *2	2,250	2,250
To Cash A/c’s (B. fig)			25,250	75,250
To Balance c/d	1,53,750	1,53,750	1,53,750	1,53,750
	1,75,250	1,75,250	2,04,500	2,54,500

 

Partners’ Capital Accounts

Particulars		Suresh	Ramesh	Mahesh	Ganesh
By Balance B/d		1,00,000	1,50,000	2,00,000	2,50,000
By Suresh’s Capital A/C*2				2,250	2,250
By Ramesh’s Capital A/c*2				2,250	2,250
By Cash A/c (B. fig)		75,250	25,250
		1,75,250	1,75,250	2,04,500	2,54,500

 

Balance Sheet

Particulars		Amount	Particulars		Amount
Provision of Claim against WCF		1,00,000	Fixed Assets		5,40,000
Sundry Creditors		1,70,000	Current Assets		3,45,000
Capital A/c
Suresh	1,53,750
Ramesh	1,53,750
Mahesh	1,53,750
Ganesh	1,53,750	6,15,000
		8,85,000			8,85,000

Working Note : 

WN *1 Calculation of Total Combined Capital in New Profit Sharing Ratio: -

Amount of Suresh's Capital	=	85,000	X	2
				10
	=	17,000

 

Amount of Ramesh’s Capital	=	85,000	X	2
				10
	=	17,000

 

Amount of Mahesh's Capital	=	85,000	X	3
				10
	=	25,500

 

Amount of Ganesh’s Capital	=	85,000	X	3
				10
	=	25,500

 

Old Ratio of X, & Y	=	2 : 2 : 3 : 3
New Ratio of X, & Y	=	1 : 1 : 1 : 1

Calculate the Sacrificing or Gaining Ratio of Partners
Sacrificing or Gaining Ratio = Old Ratio - New Ratio

Suresh's Share Sacrificing/Gaining	=	2	-	1
		10		4

=	8 - 10
		40

=	2	(Sacrifice)
			40

 

Ramesh’s Share Sacrificing/Gaining	=	2	-	1
		10		4

=	8 - 10
		40

=	2	(Sacrifice)
			40

 

Mahesh's Share Sacrificing/Gaining	=	3	-	1
		10		4

=	12 - 10
		40

=	(-2)	(Gain)
			40

 

Mahesh's Share Sacrificing/Gaining	=	3	-	1
		10		4

=	12 - 10
		40

=	(-2)	(Gain)
			40

 

Date	Particulars		L.F.	Debit	Credit
	Mahesh's Capital A/c	Dr		4,500
	Ganesh's Capital A/c	Dr		4,500
	To Suresh's Capital A/c*1				4,500
	To Ramesh’s Capital A/c*1				4,500
	(Being Mahesh and Ganesh compensate ram and Mohan)

WN *2 Calculation of Amount of Goodwill Debited/Credited to the Capital a/c : -

Suresh's Capital Credited with	=	90,000	X	2
				10
	=	4,500

 

Ramesh's Capital Credited with	=	90,000	X	2
				10
	=	4,500

 

Mahesh's Capital Debited with	=	90,000	X	2
				10
	=	4,500

 

 

Ganesh's Capital Debited with	=	90,000	X	2
				10
	=	4,500

 

1. Mahesh will compensate Suresh and Ramesh in the ratio 1 : 1 for Goodwill
2. Ganesh will compensate Suresh and Ramesh in the ratio of 1 : 1 for Goodwill

 

Partner’s New Capital	=	Total of Debit side of Capital A/c	- Total of Debit side of Capital A/c
Suresh's New Capital	=	1,00,000	- 21,500
	=	78,500
Ramesh’s New Capital	=	1,50,000	- 21,500
	=	1,28,500
Mahesh’s New Capital	=	2,04,500	- 25,500
	=	1,79,000
Ganesh’s New Capital	=	2,54,500	- 25,500
	=	2,29,000
Total Combined Capital	=	6,15,000

WN *3 Calculation of Total Combined Capital in New Profit Sharing Ratio: -

 

Amount of Suresh's New Capital	=	6,15,000	X	1
				4
	=	1,53,750

 

Amount of Ramesh’s New Capital	=	6,15,000	X	1
				4
	=	1,53,750

 

Amount of Mahesh's New Capital	=	6,15,000	X	1
				4
	=	1,53,750

 

Amount of Ganesh’s New Capital	=	6,15,000	X	1
				4
	=	1,53,750

 

T.S. Grewal’s Double Entry Book Keeping +2 (Vol. I: Accounting for Not-for-Profit Organizations and Partnership Firms)

• Chapter No. 1 – Financial Statement of Not-For-Profit Organisations
• Chapter No. 2 – Accounting for Partnership Firms – Fundamentals
• Chapter No. 3 – Goodwill: Nature and Valuation
• Chapter No. 4 – Change in Profit-Sharing Ratio Among the Existing Partners
• Chapter No. 5 – Admission of a Partner
• Chapter No. 6 – Retirement/Death of a Partner
• Chapter No. 7 – Dissolution of a Partnership Firm

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 8 – Company Accounts –  Accounting for Share Capital
• Chapter No. 9 – Company Accounts – Issue of Debentures
• Chapter No. 10 – Redemption of Debentures

T.S. Grewal’s Double Entry Book Keeping (Vol. II: Accounting for Companies)

• Chapter No. 1 – Financial Statements of a Company
• Chapter No. 2 – Financial Statement Analysis 
• Chapter No. 3 – Tools of Financial Statement Analysis – Comparative Statements and Common- Size Statements
• Chapter No. 4 – Accounting Ratios
• Chapter No. 5 – Cash Flow Statement

 

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