Change in Profit-Sharing Ratio

Determination of Sacrifice and Gain

1. A, B and C are partners sharing profits and losses in the ratio of 5:4:3. They decided to change their profit – sharing ratio to 2:2:1 with effect from March 31,2015. Calculate sacrifice and gain for all the three partners. {As Sacrifice = 1/60; B's Gain = 4/60; C's Sacrifice = 3/60}

2. X, Y and Z are partners sharing profits and losses in the ratio of 3:1:1. With effect from January 1,2015, they decided to change their profit – sharing ratio to 2:1:1. Calculate sacrifice and gain of the partners.

{X's Sacrifice = 2/20; Y's Gain = 1/20; Z's Gain = 1/20}

3. A, B, C and D are partners sharing profits and losses equally. They decided to share future profits in the ratio of 4:3:2:1. Calculate sacrifice and gain of all the four partners.

{As Gain = 3/20; B's Gain = 7/20; C's Sacrifice = 1/20, D's Sacrifice = 3/20}

4. A, B, and C were partners sharing profits in the ratio of 5:3:2. They now decide to change their profit – sharing ratio to 3:2:1. Compute sacrifice and gain of the partners.

{As Gain and Sacrifice = 0; B's Gain = 1/30; C's Sacrifice = 1/30}

5. X, Y and Z are partners sharing profits and losses in the ratio of 3:2:1. It was decided that in future Z will get 1/4th share in profit. Calculate the new profit – sharing ratio and sacrifice/gain of the partners.

{New Profit – Sharing Ratio: 9:6:5; X's Sacrifice = 3/60; Y's Sacrifice = 2/60; Z's Gain = 5/60}

6. Amit, Sumit and Namit are partners sharing profits and losses in the ratio of 4:3:2. They agreed that in future, Sumit will get 1/5* share in profit. Calculate the new profit – sharing ratio and sacrifice/gain of the partners.

{New Profit – Sharing Ratio: 8:3:4; Amit's Gain = 4/45; Sumit's Sacrifice = 6/45; Namit's Gain = 2/45}

7. X, Y and Z are partners sharing profits and losses in the ratio of 3:2:1. It was decided that in future Z will get 1/4* share in profit, which he acquires from X and Y in the ratio of 1:1 Calculate the new profit – sharing ratio and sacrifice/gain of the partners.

{New Profit – Sharing Ratio: 11:7:6; X's Sacrifice = 1/24; Y's Sacrifice = 1/24; Z's Gain = 2/24}

8. Mohan, Sohan and Rohan are partners sharing profits and losses in the ratio of 5:3:2. It was decided that in future Rohan will get 1/4th share in profit, which he acquires from Mohan and Sohan in the ratio of 3:2 Calculate the new profit – sharing ratio and sacrifice/gain of the partners.

{New Profit – Sharing Ratio: 47:28:25; Mohan's Sacrifice = 3/100; Sohan's Sacrifice = 2/100;

Rohan's Gain = 5/100}

9. A, B and C are partners sharing profits and losses in the ratio of 2:2:1. As per the new agreement, C acquires 1/5th share in profit, equally from A and B. Calculate the new profit – sharing ratio and sacrifice or gain of each partner.

{New Profit – Sharing ratio: 3:3:4; As Sacrifice = 1/10; B's Sacrifice = 1/10; C's Gain 1/5}

10. Ram, Shyam and Hari are partners sharing profits and losses in the ratio of 3:2:1. As per the new agreement, Hari acquires 1/4* share in profit, equally from Ram and Shyam. Determine the new ratio of partners and sacrifice/gain of each partner.

{New Profit – Sharing ratio: 9:5:10; Ram's Sacrifice = 1/8; Shyam's Sacrifice = 1/8; Hari's Gain 1/4}

Treatment of Goodwill

11. A and B are partners in a firm. They were sharing profits and losses in the ratio of 5:3. They decided to share future profits and losses in the ratio of 3:5. Firm's goodwill was valued at Rs. 88,000. Pass necessary adjustment entry for goodwill.

{As Sacrifice = 2/8; B's Gain = 2/8. Dr. B's Capital A/c by Rs.22,000 (= 2/8 of Rs. 88,000) and Cr. As Capital A/c by  Rs. 22,000}

12. Ram and Shyam are partners sharing profits and losses in the ratio of 3:1. On 1st January 2015, they decided to share future profits and losses in the ratio of 5:3. Goodwill of the firm was valued at Rs. 64,000.

Pass necessary journal entry for the treatment of goodwill.

{Ram's Sacrifice = 1/8; Shyam's Gain = 1/8. Dr. Shyam's Capital A/c by Rs.8,000 (= 1/8 of Rs.64,000) and Cr. Ram's Capital A/c by Rs. 8,000}

13. A, 6 and C were partners in a firm sharing profits in 3:2:1 ratio. They decided to share the profits in future in 5:3:2 ratio. For this purpose, the goodwill of the firm was valued at Rs. 60,000. Pass an adjustment entry for the treatment of goodwill. {CBSE, All India (Comptt.) 2000}

{A's Sacrifice or Gain = 0; B's Sacrifice = 1/30; C's Gain = 7/30; Dr. C's Capital A/c by Rs.2,000 (= 1/30 of Rs. 60,000); Cr. B's Capital A/c by Rs.2,000}

14. A, B and C are partners in a firm sharing profits and losses in the ratio of 3:2:1. In future, they decided to share profits in the ratio of 6:5:2. For this purpose, the goodwill of the firm was valued at Rs. 78,000. 

Pass necessary journal entry for the treatment of goodwill due to change in profit – sharing ratio. Also, show your workings clearly.

{A’s Sacrifice = 3/78; B's Gain = 4/78; C's Sacrifice = 1/78; Dr. B's Capital A/c by Rs. 4,000 (= 4/78 of Rs. 78,000); Cr. A's Capital A/c by Rs.3,000; Cr. C's Capital A/c by Rs. 1,000}

15. X, Y and Z are partners sharing profits and losses equally. With effect from 1st April, 2015, it is decided that in future, Z will get 1/15th share. Goodwill of the firm is valued at Rs. 45,000. Pass necessary journal entry for the adjustment of goodwill.

{X's Gain =1/15; Vs Gain =1/15; Z's Sacrifice = 2/15; Dr. X's Capital A/c by Rs. 3,000 (= 1/15 of ?45,000);

Dr. Y's Capital A/c by Rs. 3,000; Cr. Zs Capital A/c by Rs. 6,000}

16. A, B, C and D are partners in a firm sharing profits and losses in the ratio of 2:1:2:1. With effect from 1st April, 2015, they decided to share future profits and losses equally. The goodwill of the firm was valued at 2 years' purchase of average profits of last three years which were Rs. 75,000, Rs. 45,000 and Rs. 60,000 respectively. Pass necessary adjustment for goodwill.

{Goodwill = Rs.1,20,000; A's Sacrifice = 1/12; B's Gain = 1/12; C's Sacrifice = 1/12; D's Gain = 1/12.

Dr. B's Capital A/c by Rs. 10,000 {= 1/12 of Rs. 1,20,000); Dr. D's Capital A/c by Rs. 10,000;

Cr. A's Capital A/c by Rs. 10,000 and Cr. C's Capital A/c by Rs. 10,000}

17. A, B and C are partners sharing profits and losses in ratio of 3:2:1. With effect from 1st April, 2015, it was decided to change the profit sharing ratio to 4:3:2. Goodwill is to be valued at 2 years' purchase of average of 3 years' profit. The profits were: Rs. 95,000, Rs. 85,000 and Rs. 90,000. Pass necessary journal entry for goodwill without opening goodwill account assuming that the firm adopted fixed capital method.

{Goodwill =Rs. 1,80,000; A's Sacrifice = 1/18; B's Sacrifice or Gain = 0; C's Gain = 1/18; Dr. C's Current A/c by Rs. 10,000 (= 1/18 of Rs. 1,80,000); Cr. A's Current A/c by Rs. 10,000}

18. A, B and C are partners sharing profits and losses in the ratio of 5:3:2.They now decided to share future profits and losses equally. The goodwill of the firm has been valued at Rs. 90,000. Goodwill is already appearing in the books at Rs. 40,000. Show the necessary journal entries, assuming no goodwill will appear in the books of accounts

{Write off existing goodwill of Rs. 40,000 among A, B and C in 5:3:2; i.e. Dr. A's Capital A/c by ?20,000, Dr. B's Capital A/c by Rs. 12,000, Dr. C's Capital A/c by Rs.8,000 and Cr. Goodwill A/c by Rs. 40,000; Gain/ Sacrifice: A's Sacrifice = 5/30; B's Gain = 1/30; C's Gain = 4/30; Dr. B's Capital A/c by Rs. 3,000 (= 1/30 of Rs. 90,000); Dr. C's Capital A/c by Rs. 12,000 and Cr. A's Capital A/c by Rs. 15,000}

Treatment of Accumulated Reserves and Surplus

19. X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. With effect from 1st April, 2015, they decided to share future profits equally. On the date of change in the profit – sharing ratio, the profit and loss account showed a credit balance of Rs. 30,000. Record the necessary Journal entry for the distribution of the balance in the Profit and Loss Account immediately before the change in the profit – sharing ratio.

{Dr. Profit and Loss A/c by Rs. 30,000; Cr. X's Capital A/c by Rs. 18,000 (= 3/5 of Rs.30,000);

Cr. Y's Capital A/c by Rs. 12,000(= 2/5 of Rs.30,000)}

20. Ankit and Namit are partners in a firm sharing profits and losses in the ratio of 3:2. They decided to share future profits equally. On the date of change in the profit sharing ratio, the Profit and Loss Account showed a debit balance of Rs. 10,000 and General Reserve of Rs. 40,000. Record the necessary journal entries for the distribution of the balance in the Profit and Loss Account and General Reserve before the change in the profit sharing ratio.

{2 Journal Entries: (i) Cr. Profit and Loss A/c by Rs. 10,000 and Dr. Ankifs Capital A/c by Rs. 6,000 (= 3/5 of Rs. 10,000) and Namit's Capital A/c by Rs.4,000 (ii) Dr. General Reserve A/c by Rs.40,000 and Cr. Ankit's Capital A/c by Rs. 24,000 (= 3/5 of Rs. 40,000) and Cr. Namit's Capital A/c by Rs. 16,000}

21. X, Y and Z are partners sharing profits and losses in the ratio of 5:3:2. With effect from 1st April, 2015, they decided to share profits and losses in the ratio of 2:2:1. On that date, their balance sheet showed the following balances:

Profit and Loss (Dr.) RS.25,000

General Reserve Rs.50,000

Workmen Compensation Reserve Rs.5,000

Advertisement Suspense A/c Rs.10,000

Pass necessary journal entries.

 Ans.  Journal Entries: (i) Cr. Profit and Loss A/c by Rs.Rs.25,000; Cr. Advertisement Suspense A/c by Rs. 10,000 and Dr.

X's Capital A/c by Rs.17,500 (= 5/10 of Rs.35,000), Dr. Y's Capital A/c by Rs. 10,500 and Dr. Zs Capital A/c y Rs. 7,000. (ii) Dr. General Reserve A/c by Rs.50,000; Dr. Workmen Compensation Reserve A/c by Rs.5,000 and Cr. X's Capital A/c by Rs.27,500 (= 5/10 of Rs. 55,000); Cr. Y's Capital A/c by Rs. 16,500 and Cr.

Zs Capital A/c by Rs. 11,000}

Note: (i) As nothing is mentioned about the treatment of accumulated reserves and losses, they will be distributed among the partners in the old ratio (ii) Workmen compensation reserve will also be distributed among the partners as in the absence of any specific information, it is assumed that there is no expected liability for workmen compensation.

22. A and B were partners sharing profits and losses in the ratio of 2:1. On 31st Dec, 2014, their balance sheet showed a general reserve of Rs. 60,000. It was decided that in future they will share profits and losses in the ratio of 3:2. Pass necessary journal entry in each of the following alternative cases:

(i) If they do not want to show general reserve in the new balance sheet.

(ii) If they want to show general reserve in the new balance sheet.

{(I) Dr. General Reserve A/c by Rs. 60,000; Cr. A's Capital A/c by Rs.40,000 (= 2/3 of Rs. 60,000);

Cr. B's Capital A/c by Rs. 20,000 (= 1/3 of Rs. 60,000); (ii) A's Sacrifice = 1/15; B's Gain = 1/15; Dr. B's

Capital A/c by Rs. 4,000 (= 1/15 of Rs. 60,000) and Cr. A's Capital A/c by Rs. 4,000}

Comprehensive Questions

23. X,Y and Z are partners sharing profits and losses equally. On 1st April 2015, they decided that in future, Z will get 1/5* share in profits. Their balance sheet as at March 31st, 2015 was as follows:

Liabilities Amt. (`) Assets Amt. (`)

Creditors 20,000 Cash in hand 20,000

Capital A/cs: Debtors 22,500

X 30,000 Less: Provision for

Y 40,000 Doubtful Debts (4,000)

Z 20,000 Stock 32,500

Building 39,000

On the date of change in profit – sharing ratio, the following was agreed upon:

(i) Building has been valued at Rs. 44,000.

(ii) Stock to be reduced by Rs. 1,500.

(iii) Provision for Doubtful Debts to be reduced by Rs. 1,000.

(iv) Goodwill of the firm is to be valued at Rs. 45,000.

Pass journal entries in the books of the firm regarding the revaluation of assets, treatment of goodwill

and prepare the Revaluation A/c.

{X's Gain = 1/15; Y's Gain = 1/15; Zs Sacrifice = 2/15; Treatment of Goodwill: Dr. X's Capital A/c

by Rs.3,000, Dr. Y's Capital A/c by Rs.3,000 and Cr. Zs Capital A/c

by Rs.6,000 (= 2/15 of Rs. 45,000); Revaluation Profit: Rs. 4,500.)

24. The following in the Balance sheet of X and Y as on 31st March 2015.

Liabilites Amt. (`) Assets Amt. (`)

Creditors 50,000 Building 80,000

Capital A/cs Furniture 30,000

X 90,000 Debtors 50,000

Y 60,000 Stock 20,000

Cash 20,000

The partners share profits and losses in the ratio of 3:2. From 1 – 4 – 2015, they agreed to share profits and losses equally. For this purpose, the followings were agreed upon:

(i) Building is to be valued at Rs. 1,20,000

(ii) Current value of furniture is to be taken at Rs. 45,000.

(iii) A provision for doubtful debts @ 10% is to be created on Debtors.

(iv) Goodwill of the firm is to be valued at Rs. 70,000.

Pass journal entries in the books of the firm regarding the revaluation of assets, treatment of goodwill and prepare the Revaluation A/c.

{X's Sacrifice  –  1/10; Y's Gain = 1/10; Treatment of Goodwill: Dr. Y's Capital A/c by Rs. 7,000 (= 1/10 of f 70,000),

Cr. X's Capital A/c by Rs. 7,000; Revaluation Profit: Rs. 50,000.)

25. A and B are partners in a firm sharing profits and losses in the ratio of 2:3. They decided to share profits in the ratio of 1:1 from April 1st. 2015. Their Balance Sheet as at March 31st, 2015 was as under:

Liabilities Amt. (Rs.) Assets Amt.(Rs.)

Creditors 80,000 Building 60,000

Bills Payable 30,000 Furniture 5,000

Profit & Machinery 1,00,000

Loss A/c 25,000

General Debtors 40,000

Reserve   5,000

Capital A/cs Bills 

Receivable 10,000

A 60,000 Cash at Bank 25,000

B 40,000

 It was agree that on above date:

(i) The goodwill of the firm should be valued at Rs. 60,000.

(ii) The value of building be appreciated by 10%.

(iii) Furniture be increased to Rs. 15,000.

(iv) Machinery be reduced by 5%.

(v) A provision for doubtful debts is to be made on Debtors @ 5%.

(vi) A liability for Rs. 5,000 included in sundry creditors is not likely to rise.

(vii) A provision made for outstanding salaries amounting to Rs. 2,000.

Partners agreed that revised values of assets and liabilities are to be recorded in the books. You are required to record the necessary journal entries and also prepare Revaluation Account, Partners' Capital

Account and Opening Balance Sheet of the firm.

{A's Gain = 1/10; B's Sacrifice = 1/10; Treatment of Goodwill: Dr. A's Capital A/c by  Rs.6,000 (= 1/10 of Rs. 60,000) and Cr. B's Capital A/c by Rs.6,000; Revaluation Profit: Rs. 12,000; Capitals: A: Rs.70,800; B: f 71,200; Balance Sheet Total: Rs.2,49,000}

26. Anil, Sunil and Ramesh are partners sharing profits and losses in the ratio of 5:3:2.Their Balance Sheet as on 31st March, 2015 was as follows:

Liabilities Amt. (Rs.) Assets Amt. (Rs.)

Creditors 60,000 Cash at Bank 20,000

Bills Payable 65,000 Debtors 45,000

Workmen Compensation 

Reserve 25,000 Stock 75,000

Capitals A/cs: Furniture 35,000

Anil 60,000 Building 1,00,000

Sunil 60,000 Advertisement 

Suspense A/c 25,000

On 1st April 2015, they decide to share future profits and losses in the ratio of 3:2:1 and following adjustments were agree upon:

(i) Furniture to be decreased by Rs. 3,500.

(ii) Buildings is to be appreciated by 25%.

(iii) A provision for bad debts is to be maintained for Rs. 6,000 on debtors.

(iv) Goodwill of the firm is to be valued at Rs. 90,000.

Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the reconstituted firm.

{Anil's Gain and Sacrifice = 0; Sunil's Gain = 2/60; Ramesh 's Sacrifice = 2/60; Treatment of Goodwill: Dr. Sunil's Capital A/c by Rs.3,000 (= 2/60 of Rs.90,000) and Cr. Ramesh's Capital A/c by Rs. 3,000; Revaluation Profit: Rs.15,500; Capitals: Anil: Rs. 67,750; Sunil: Rs.61,650; Ramesh: Rs.36,100; Balance Sheet Total: Rs.2,90,500}

27. Harsh and Honey are partners in a firm sharing profits and losses in the ratio of 3:1. They decided to share profits equally from Jan 1st 2015. Their Balance Sheet as at 31st December, 2014 was as under:

Liabilities Amt. (Rs.) Assets Amt.(Rs.)

Creditors 1,30,000 Building 50,000

General 

Reserve 30,000 Machinery 53,000

Workmen 

Compensation 

Reserve 10,000 Debtors 40,000

Capital A/cs: Bill Receivable 40,000

Harsh 50,000 Cash in hand 77,000

Honey 40,000

 It was agreed that on above data:

(i) The Goodwill of the firm 80,000

(ii) Value of Building be increased to Rs. 70,000

(iii) The value of Machinery be appreciated by Rs. 40,000

(iv) A provision for doubtful debts is to be made on Debtors @ 5%.

(v) A liability for Rs. 2,000 included in Sundry Creditors is not likely to rise.

Partners agreed that revised value of Assets and Liabilities are to be recorded in the books. Pass necessary journal entries, prepare Revaluation A/c, Partners' Capital Account and opening Balance Sheet of the reconstituted firm.

(Harsh's Sacrifice = 1/4; Honey's Gain = 1/4; Treatment of Goodwill: Dr. Honey's Capital A/c by ?20,000 (= ¼ of Rs.80,000) and Cr. Harsh's Capital A/c by Rs.20,000; Revaluation Profit: Rs. 60,000; Capitals: Harsh: Rs. 1,45,000; Honey: Rs.45,000; Balance Sheet Total: Rs.3,18,000}

28. Sonu, Sumit and Sahil are partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as at 31st December, 2014 was as follows:

Liabilities Amt. (Rs.) Assets Amt.(Rs.)

Sundry Creditors 50,000 Cash at Bank 25,000

Capital A/cs: Sundry Debtors 50,000

Sonu 2,00,000 Stock 75,000

Sumit 80,000 Machinery 1,00,000

Sahil 70,000 Building 1,50,000

 Partners decided that with effect from 1st January, 2015, they would share profits and losses in the ratio of 3:2:1. It was agreed that:

(a) Stock be valued at Rs. 70,000

(b) Machinery to be depreciated by 20%

(c) A provision for doubtful debts be made on debtors @ 5%.

(d) Building to be appreciated by 15%

(e) A liability for Rs. 9,500 included in Sundry Creditors it not likely to arise.

(f) Goodwill of the firm is to be valued at Rs. 90,000.

Partners agreed that the revised values of assets and liabilities are not to be recorded in the books. You are required to record the change by passing a single journal entry with necessary working note. Also prepare the revised Balance – Sheet.

(Sonu's Sacrifice and Gain = 0; Sumit's Gain = 1/30, Sahil's Sacrifice = 1/30; Revaluation Profit of Rs. 4,500 and Goodwill of Rs.90,000 to be adjusted. Dr. Sumit's Capital A/c by Rs. 3,150 (= 1/30 of Rs. 94,500) and Cr. Sahil's Capital A/c by Rs.3,150; Capitals: Sonu: Rs.2,00,000; Sumit: Rs. 76,850; Sahil: Rs. 73,150; Balance Sheet Total: Rs.4,00,000}

29. A, B and C are partners sharing profits and losses in the ratio of 5:3:2. Their position on 31st December 2014 was as follows:

Liabilities Amt. (`) Assets Amt. (`)

Creditors 40,000 Cash in Hand 30,000

Bill Payable 14,000 Debtors 60,000

Capitals A/cs: Less: Provision (6,000)

54,000

A 3,00,000 Stock 2,00,000

B 2,00,000 Furniture 1,50,000

C 1,60,000 Land and Building 2,80,000

It was decided that with effect from 1st January 2015, profit and loss sharing ratio will be 3:3:1. They agreed on the following terms:

(i) Goodwill of the firm be valued at two year's purchase of the average profits of the last five years profits. The profits and losses of the preceding five years are:

Profits: 2008: Rs. 60,000; 2009: Rs. 80,000; 2010: Rs. 40,000; 2011;Rs. 20,000 (loss); 2012: Rs. 50,000.

(ii) Provision on debtors to be maintained at 15% of debtors.

(iii) Value of stock be increased by 5% and furniture be valued at Rs. 90,000.

(iv) Building to be revalued at Rs. 3,12,000.

Partners do not want to record the altered values of assets and liabilities in the books and also do not want to record the goodwill. Pass an entry to give effect to the above and prepare revised balance sheet.

(As Sacrifice = 5/70; B's Gain = 9/70, C's Sacrifice = 4/70; Revaluation Loss of Rs. 21,000 and Goodwill of Rs.84,000 to be adjusted. Dr. B's Capital A/c by Rs.8,100 (= 9/70 of Rs.63,000), Cr. A's Capital  A/c by Rs.4,500 and Cr. C's Capital A/c by Rs.3,600; Capitals: A: Rs. 3,04,500; B: Rs. 1,91,900;  C: Rs. 1,63,600; Balance Sheet Total: Rs.7,14,000}