Question 16 Chapter 4 of +2-Part-1
16. (Comprehensive Illustration) X and Y are in partnership, sharing profits in 2:3 ratio. With effect from 1st April 2019, they agreed to share profits in the ratio of 1:2. For this purpose, the goodwill of the firm is to be valued at two years purchase of the average profits of the last three years, which were Rs.75,000, Rs.80,000 and Rs.1,00,000 respectively. The reserve appears in the books at Rs.55,000. Partners neither want to show the goodwill in the books nor want to distribute the reserve. You are required to give effect to the change by passing a single journal entry.
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The solution of Question 16 Chapter 4 of +2 Part-1: –
| In the Books of A, B and C | |||||
| Date | Particulars |
L.F. | Debit | Credit | |
| 2019 | |||||
| April 1 | Y’s Capital A/c | Dr. | 15,000 | ||
| To X’s Capital A/c | 15,000 | ||||
| (Being capitals adjusted on account of change in profit ratio) | |||||
Working Notes: –
Old Ratio = 2 : 3
New Ratio = 2 : 2
Calculate the Sacrificing or Gaining Ratio of Partners
Sacrificing or Gaining Ratio = Old ratio – New ratio
| X’s Share Sacrificing/Gaining | = | 2 | – | 1 |
| 5 | 3 |
| = | 6- 5 | |
| 15 |
| = | 1 | (Sacrificing) | |
| 15 |
| Y’s Share Sacrificing/Gaining | = | 3 | – | 2 |
| 5 | 3 |
| = | 9 – 10 | |
| 15 |
| = | -1 | (Gain) | |
| 15 |
| Calculation of net adjustment in the partner’s capital accounts: | ||
| Particulars |
A | B |
| On account of goodwill (Rs.1,70,000*1/15) | (Cr.)11,333 | (Dr.)11,333 |
| On account of Reserve (Rs.55,000*1/15) | (Cr.) 3,667 | (Dr.) 3,667 |
| Adjustment | (Cr.)15,000 | (Dr.)15,000 |
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Also, Check out the solved question of previous Chapters: –
Usha Publication – Accountancy PSEB (Class 12) – Volume I – Solution
- Chapter No. 1 – Accounting Not for Profit Organisations
- Chapter No. 2 – Partnership Accounts – I (Introduction)
- Chapter No. 3 – Partnership Accounts – II (Goodwill: Nature and Valuation)
- Chapter No. 4 – Partnership Accounts – III (Reconstitution of Partnership)
- Chapter No. 5 – Partnership Accounts – IV (Admission of A Partner)
- Chapter No. 6 – Partnership Accounts – V (Retirement and Death of A Partner)
- Chapter No. 7 – Partnership Accounts – VI (Dissolution of Partnership Firm)
- Chapter No. 8 – Company Accounts (Share Capital)
- Chapter No. 9 – Company Accounts (Issue of Debentures)
- Chapter No. 10 – Company Accounts (Redemption of Debentures)
Usha Publication – Accountancy PSEB (Class 12) – Volume II – Solution
- Chapter No. 1 – Financial Statements of a Company
- Chapter No. 2 – Financial Statement Analysis
- Chapter No. 3 – Tools of Financial Statement Analysis- Comparative and Common Size
- Chapter No. 4 – Ratio Analysis
- Chapter No. 5 – Cash Flow Statement
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