T.S. Grewal Class 12 Chapter 3 Q.24 - Change in Profit-Sharing Ratio Among the Existing Partners

Question 24

Bhavya and Sakshi are partners sharing profits and losses in the ratio of 3 : 2. Their Balance Sheet as at 31st March, 2018 showed: Sundry Creditors ₹13,800; General Reserve ₹23,400; Investment Fluctuation Fund ₹20,000; Bhavya’s Capital ₹50,000; Sakshi’s Capital ₹40,000; and assets – Furniture ₹16,000, Land and Building ₹56,000, Investments ₹30,000, Trade Receivables ₹18,500, Cash in Hand ₹26,700. They decided to change their profit-sharing ratio to 1 : 1, and agreed that: (i) Investments be valued at ₹20,000; (ii) Goodwill of the firm be valued at ₹24,000; (iii) General Reserve not to be distributed. Pass the necessary Journal entries.

Solution

Sacrifice / (Gain): Bhavya = 3/5 – 1/2 = 1/10 (Sacrifice); Sakshi = 2/5 – 1/2 = –1/10 (Gain).

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2018 Mar 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
	(Fall in investments ₹10,000 met from IFF; balance ₹10,000 distributed in the old ratio 3 : 2)
2018 Mar 31	Sakshi’s Capital A/c    Dr. (24,000 × 1/10)		2,400
	To Bhavya’s Capital A/c			2,400
	(Adjustment of goodwill on change in profit-sharing ratio)
2018 Mar 31	Sakshi’s Capital A/c    Dr. (23,400 × 1/10)		2,340
	To Bhavya’s Capital A/c			2,340
	(Adjustment of General Reserve, which is not distributed, in the sacrificing / gaining ratio)