Question

X, Y and Z share profits as 5 : 3 : 2. They decide to share their future profits as 4 : 3 : 3 with effect from 1st April, 2019. On this date the following revaluations have taken place:

	Book Values (₹)	Revised Values (₹)
Investments	22,000	25,000
Plant and Machinery	25,000	20,000
Land and Building	40,000	50,000
Outstanding Expenses	5,600	6,000
Sundry Debtors	60,000	50,000
Trade Creditors	70,000	60,000

Pass necessary adjustment entry to be made because of the above changes in the values of assets and liabilities. However, old values will continue in the books . 

Answer 1

Journal

Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	Z’s Capital A/c	Dr.		760
	To X’s Capital A/c				760
	(Adjustment of revaluation profit made)

Working Notes:

WN 1 Calculation of Net Profit or Loss on Revaluation

Particulars	Amount (₹)
Increase in Investment	3,000 (Cr.)
Decrease in Plant and Machinery	(5,000) (Dr.)
Increase in Land and Building	10,000 (Cr.)
Increase in Outstanding Expenses	(400) (Dr.)
Decrease in Sunday Debtors	(10,000) (Dr.)
Decrease in Trade Creditors	10,000 (Cr.)
Profit on Revaluation	7,600 (Cr.)

WN 2 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 4 : 3 : 3

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

X's share = `5/10 - 4/10 = 1/10` (sacrifice)

Y's share= `3/10 - 3/10 = "Nil"`

Z's share = `2/10 - 3/10 = (-1)/10` (gain)

WN 3 Adjustment of Revaluation Profit

X will be credited by = `7,600 xx 1/10` = Rs 760

Z will be debited by = `7,600 xx 1/10` = Rs 760