Question

X, Y and Z were sharing profits and losses in the ratio of 5 : 3 : 2. They decided to share future profits and losses in the ratio of 2 : 3 : 5 with effect from 1.4.2022. They decided to record the effect of the following, without effecting their book values:

(i) General Reserve	₹ 24,000
(ii) Profit and Loss Account (Dr.)	₹ 12,000

Pass the necessary adjusting entry.

Answer 1

Old ratio:

X : Y : Z = 5 : 3 : 2

New ratio:

X : Y : Z = 2 : 3 : 5

Since partners want to record the effect without changing the book values, we pass only one adjustment entry.

1. Net accumulated amount

General Reserve = ₹ 24,000

Less: Debit balance of P&L A/c = ₹ 12,000

₹ 24,000 − ₹ 12,000 = ₹ 12,000​

So effectively there is a net reserve of ₹ 12,000.

2. Gain or Sacrifice

X:

Old share: `5/10`

New share: `2/10`

Sacrifice: `5/10 - 2/10 = 3/10`

So X sacrifices `3/10`

Y:

`3/10 - 3/10 = 0`

So Y neither gains nor sacrifices.

Z:

`2/10 - 5/10 = -3/10`

So Z gains `3/10`

3. Adjustment Amount

`12,000 xx 3/10 = 3,600`

Since X sacrifices and Z gains, Z compensates X.

Journal Entry
Date	Particulars	L.F.	Dr. ₹	Cr. ₹
	Z’s Capital A/c   ...Dr.		3,600
	To X’s Capital A/c			3,600
	(Being the adjustment entry passed for goodwill by debiting the gaining partner's capital account and crediting the sacrificing partner's capital account)