Question

Samiksha, Ash and Divya were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April, 2019, they agreed to share future profits and losses in the ratio of 2 : 5 : 3. Their Balance Sheet showed a debit balance of ₹ 50,000 in the Profit and Loss Account and a balance of ₹ 40,000 in the Investment Fluctuation Reserve. For this purpose, it was agreed that:

1. Goodwill of the firm be valued at ₹ 3,00,000.
2. Investments of book value of ₹ 5,00,000 be valued at ₹ 4,80,000.

Pass the necessary journal entries to record the above transactions in the books of the firm.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Ash's Capital A/c   ...Dr.		60,000
	Divya's Capital A/c   ...Dr.		30,000
	To Samiksha's Capital A/c			90,000
	(Being the adjustment entry passed for goodwill among partners on change in profit-sharing ratio by debiting gaining partners and crediting sacrificing partner)
2.	Samiksha's Capital A/c   ...Dr.		25,000
	Ash's Capital A/c   ...Dr.		15,000
	Divya's Capital A/c   ...Dr.		10,000
	To Profit & Loss A/c			50,000
	(Being the accumulated loss in Profit & Loss account written off by debiting partners' capital accounts in their old profit-sharing ratio)
3.	Investment Fluctuation Reserve A/c   ...Dr.		40,000
	To Investments A/c			20,000
	To Samiksha's Capital A/c			10,000
	To Ash's Capital A/c			6,000
	To Divya's Capital A/c			4,000
	(Being the fall in value of investments adjusted against Investment Fluctuation Reserve and the surplus distributed among partners in their old profit-sharing ratio)

Working note:

Old Ratio = 5 : 3 : 2

New Ratio = 2 : 5 : 3

1. Goodwill Adjustment

Sacrifice/Gain:

Samiksha: `5/10 − 2/10 = 3/10` sacrifice

Ash: `5/10 − 3/10 = 2/10` gain

Divya: `3/10 − 2/10 = 1/10` gain

Goodwill = ₹ 3,00,000

Ash pays: `3,00,000 × 2/10 = ₹ 60,000`

Divya pays: `3,00,000 × 1/10 = ₹ 30,000`

Samiksha gets: ₹ 90,000

2. P&L Debit Balance ₹ 50,000

Distributed in old ratio 5 : 3 : 2:

Samiksha = ₹ 25,000

Ash = ₹ 15,000

Divya = ₹ 10,000

3. Investment Fluctuation Reserve

Reserve = ₹ 40,000

Fall in investment value:

₹ 5,00,000 − ₹ 4,80,000 = ₹ 20,000

Balance reserve:

₹ 40,000 − ₹ 20,000 = ₹ 20,000

₹ 20,000 distributed in old ratio:

Samiksha = ₹ 10,000

Ash = ₹ 6,000

Divya = ₹ 4,000