Question

Ravi, Jay and Vipin are partners sharing profits in the ratio of 5 : 4 : 1. It is now agreed thay they will share future profits in a new ratio.

Following Journal entry is passed for adjustment of goodwill due to change in profit-sharing ratio:

JOURNAL ENTRIES
Date	Particulars	L.F.	Dr: (₹)	Cr: (₹)
	Vipin's Capital A/c (3/10 of 3,00,000)   ...Dr.		90,000
	To Ravi's Capital A/c (2/10 of ₹ 3,00,000)			60,000
	To Jay's Capital A/c (1/10 of ₹ 3,00,000)			30,000
	(Adjustment for goodwill due to change in profit sharing ratio)

Find out new profit sharing ratio of Ravi, Jay and Vipin.

Answer 1

Old profit-sharing ratio:

Ravi : Jay : Vipin = 5 : 4 : 1

So old shares are:

`"Ravi" = 5/10, "Jay" = 4/10, "Vipin" = 1/10`

From the goodwill adjustment entry:

Vipin’s Capital A/c is debited by ₹ 90,000

Ravi’s Capital A/c is credited by ₹ 60,000

Jay’s Capital A/c is credited by ₹ 30,000

Goodwill of the firm = ₹ 3,00,000.

Hence:

Vipin’s gain = `(90,000)/(3,00,000) = 3/10`

Ravi’s sacrifice = `(60,000)/(3,00,000) = 2/10`

Jay’s sacrifice = `(30,000)/(3,00,000) = 1/10`

Now:

New Share = Old Share + Gain − Sacrifice

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

Jay = `4/10 - 1/10 = 3/10`

Vipin = `1/10 + 3/10 = 4/10`

Therefore, new profit-sharing ratio:

`3/10 : 3/10 : 4/10`

Ravi : Jay : Vipin = 3 : 3 : 4