T.S. Grewal Class 12 Chapter 3 Q.25 - Change in Profit-Sharing Ratio Among the Existing Partners

Question 25

Hari, Kunal and Uma are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. From 1st April, 2018, they decided to share future profits and losses in the ratio of 2 : 5 : 3. Their Balance Sheet showed a balance of ₹75,000 in the Profit & Loss Account and ₹15,000 in the Investment Fluctuation Fund. It was agreed that: (i) Goodwill be valued at ₹3,00,000; (ii) investments (book value ₹50,000) be valued at ₹35,000; (iii) stock (book value ₹50,000) be depreciated by 10%. Pass the necessary Journal entries. (CBSE 2019)

Solution

Sacrifice / (Gain): Hari = 5/10 – 2/10 = 3/10 (Sacrifice); Kunal = 3/10 – 5/10 = –2/10 (Gain); Uma = 2/10 – 3/10 = –1/10 (Gain).

JOURNAL

Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	Kunal’s Capital A/c    Dr. (3,00,000 × 2/10)		60,000
	Uma’s Capital A/c    Dr. (3,00,000 × 1/10)		30,000
	To Hari’s Capital A/c (3,00,000 × 3/10)			90,000
	(Adjustment of goodwill on change in profit-sharing ratio)
	Investment Fluctuation Fund A/c    Dr.		15,000
	To Investments A/c			15,000
	(Fall in the value of investments ₹15,000 met from IFF)
	Revaluation A/c    Dr.		5,000
	To Stock A/c			5,000
	(Stock depreciated by 10% of ₹50,000)
	Profit & Loss A/c    Dr.		75,000
	To Hari’s Capital A/c			37,500
	To Kunal’s Capital A/c			22,500
	To Uma’s Capital A/c			15,000
	(Accumulated profit distributed in the old ratio 5 : 3 : 2)
	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
	(Revaluation loss on stock transferred in the old ratio 5 : 3 : 2)