Question

A, B, C and D are partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1 : 1. They decided to share future profits and losses in the ratio of 3 : 2 : 2 : 3. For this purpose goodwill of the firm valued at ₹ 1,50,000. There was also a reserve of ₹ 60,000 in the books of the firm.

Find out sacrifice ratio and gaining ratio and pass necessary journal entry assuming that reserve is not to be distributed.

Answer 1

Journal Entry
Date	Particulars	L.F.	Dr. ₹	Cr. ₹
	C's Capital A/c   ...Dr.		7,000
	D's Capital A/c   ...Dr.		28,000
	To A's Capital A/c			7,000
	To B's Capital A/c			28,000

Working note:

Old ratio:

A : B : C : D = 2 : 2 : 1 : 1

New ratio:

A : B : C : D = 3 : 2 : 2 : 3

1. Sacrifice/Gain

A

`2/6 - 3/10 = 1/3 - 3/10 = (10 - 9)/30 = 1/30` Sacrifice

B

`2/6 - 2/10 = 1/3 - 1/5 = 2/15` Sacrifice

C

`1/6 - 2/10 = 1/6 - 1/5 = -1/30`

`1/30` Gain

D

`1/6 - 3/10 = 5/30 - 9/30 = -4/30`

`2/15` Gain

Therefore:

Sacrificing Ratio of A : B = 1 : 4​

Gaining Ratio of C : D = 1 : 4

2. Goodwill Adjustment

Goodwill = ₹ 1,50,000

A's sacrifice:

`1,50,000 xx 1/30 = 5,000`

B's sacrifice:

`1,50,000 xx 2/15 = 20,000`

Therefore C and D compensate A and B:

C = ₹ 5,000

D = ₹ 20,000

3. Reserve Adjustment

Reserve = ₹ 60,000, but it is not to be distributed.

Adjustment according to gain/sacrifice:

A:

`60,000 xx 1/30 = 2,000` Cr.

B:

`60,000 xx 2/15 = 8,000` Cr.

C:

`60,000 xx 1/30 = 2,000` Dr.

D:

`60,000 xx 2/15 = 8,000` Dr.

Combined Adjustment
Partner	Goodwill ₹	Reserve ₹	Total ₹
A	Cr. 5,000	Cr. 2,000	Cr. 7,000
B	Cr. 20,000	Cr. 8,000	Cr. 28,000
C	Dr. 5,000	Dr. 2,000	Dr. 7,000
D	Dr. 20,000	Dr. 8,000	Dr. 28,000