Question

A, B and C are sharing profits and losses in the ratio of 2 : 2 : 1. They decided to share profit w.e.f. 1st April, 2019 in the ratio of 5 : 3 : 2. They also decided not to change the values of assets and liabilities in the books of account. The book values and revised values of assets and liabilities as on the date of change were as follows:​

	Book values (₹)	Revised values (₹)
Machinery	2,50,000	3,00,000
Computers	2,00,000	1,75,000
Sundry Creditors	90,000	75,000
Outstanding Expenses	15,000	25,000

Pass an adjustment entry.

Answer 1

Journal

Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	A’s Capital A/c (30,000×110=3,000)(30,000×110=3,000)	Dr.		3,000
	To B’s Capital A/c				3,000
	(Adjustment entry made for change in ratio)

Working Notes:

WN1: Calculation of Sacrifice or Gain

A : B : C = 2 : 2 : 1(old ratio)

A : B : C = 5 : 3 : 2 (new ratio)

Sacrificing (or gaining ratio) = Old ratio - New ratio

A's share = `2/5 - 5/10 = (4-45)/10 = 1/10` (gain)

B's share = `2/5 - 3/10 = (4-3)/10 = 1/10` (sacrifice)

C's share = `1/5 - 2/10 = (2-2)/10 = 0`

WN2: Calculation of Profit or Loss on Revaluation

Revaluation A/c

Dr.					Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Computers A/c		25,000	Machinery A/c	50,000
Outstanding expenses A/c		10,000	Creditors A/c	15,000
Profit on Revaluation		30,000
		65,000		65,000