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Question 09 Chapter 4 of +2-A
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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.
The solution of Question 09 Chapter 4 of +2-A:
| 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: –
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| 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
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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 | ||
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
Check out T.S. Grewal +2 Book 2020@ Official Website of Sultan Chand Publication
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