Question

X, Y and Z are partners sharing profits and losses in the ratio of 7 : 5 : 4. Their Balance Sheet as at 31st March, 2019 stood as:

Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/cs:			Sundry Assets	7,00,000
X	2,10,000
Y	1,50,000
Z	1,20,000	4,80,000
General Reserve		65,000
Profit and Loss A/c		25,000
Creditors		1,30,000
		7,00,000		7,00,000

Partners decided that with effect from 1st April, 2019, they will share profits and losses in the ratio of 3 : 2 : 1. For this purpose, goodwill of the firm was valued at ₹ 1,50,000. The partners neither want to record the goodwill nor want to distribute the General Reserve and profits.
Pass a Journal entry to record the change and prepare Balance Sheet of the constituted firm.

Answer 1

Journal

Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	X’s Capital A/c	Dr.		15,000
	Y’s Capital A/c	Dr.		5,000
	To Z’s Capital A/c				20,000
	(Adjustment made for Goodwill, General Reserve and Profit and Loss Account on change in profit sharing ratio)

  

Balance Sheet
as on 01st April, 2019

Liabilities		Amount (₹)	Assets	Amount (₹)
Capital A/c s:			Sunday Assets	7,00,000
X	1,95,000
Y	1,45,000
Z	1,40,000	4,80,000
General Reserve		65,000
Profit and Loss A/c		25,000
Creditors		1,30,000
		7,00,000		7,00,000

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 7 : 5 : 4

New Ratio (X, Y and Z) = 3 : 2 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

X's share = `7/16 - 3/6 = (21-24)/48 = 13/48` (gain)

Y's share = `5/16 - 2/6 = (15-16)/48 = -1/48` (gain)

Z's share = `4/16 - 6/6 = (12-8)/48 = 4/48` (sacrifice)

WN 2 Adjustment of General Reserve, Profit and Loss Account and Goodwill

Total Amount for Adjustment = General Reserve + Profit and Loss Account + Goodwill

= 65,000 + 25,000 + 1,50,000 = Rs 2,40,000

Amount to be debited to X's capital = `2,40,000 xx 3/48` (share of gain)

                                                           = Rs 15,000

Amount to be debited to Y's capital = `2,40,000 xx 1/48` (share of gain) 

                                                          = Rs 5,000

Amount to be credited to Z's capital = `2,40,000 xx 4/48` (share of sacrifice) 

                                                           = Rs 20,000

WN 3

 

Partners’ Capital Accounts

Dr.							Cr.
Particulars	X	Y	Z	Particulars	X	Y	Z
Z's Capital A/c	15,000	5,000	–	Balance b/d	2,10,000	1,50,000	1,20,000
				X's Capital A/c	–	–	15,000
				Y's Capital A/c	–	–	5,000
Balance c/d	1,95,000	1,45,000	1,40,000
	2,10,000	1,50,000	1,40,000		2,10,000	1,50,000	1,40,000