CBSE (Arts) Class 12CBSE
Share
Notifications

View all notifications

A And B Are Partners in a Firm Sharing Profits in the Ratio of 2 : 1. They Decided with Effect from 1st April, 2018, that They Would Share Profits in the Ratio of 3 : 2 - CBSE (Arts) Class 12 - Accountancy

Login
Create free account


      Forgot password?

Question

A and B are partners in a firm sharing profits in the ratio of 2 : 1. They decided with effect from 1st April, 2018, that they would share profits in the ratio of 3 : 2. But, this decision was taken after the profit for the year ended 31st March, 2019 of ₹ 90,000 was distributed in the old ratio.
The profits for the year ended 31st March, 2017 and 2018 were ₹ 60,000 and ₹ 75,000 respectively. It was decided that Goodwill Account will not be opened in the books of the firm and necessary adjustment be made through Capital Accounts which on 31st March, 2019 stood at ₹ 1,50,000 for A and ₹ 90,000 for B.
Pass necessary Journal entries and prepare Capital Accounts. 

Solution

Journal

Date
 

Particulars

L.F.

Debit

Amount

(₹)

Credit

Amount

(₹)

2018
April 1


A’s Capital A/c


Dr.

 


6,000

 

 

To B’s Capital A/c

 

 

6,000

 

(Adjustment of profit for 2018-19 on change in profit sharing ratio)

 

 

 

April 1

B’s Capital A/c

Dr.

 

9,000

 

 

To A’s Capital A/c

 

 

9,000

 

(Adjustment of goodwill made on change in profit sharing ratio)

 

 

 

 

Partners’ Capital Accounts

Dr.

 

 

 

 

Cr.

Particulars

A

B

Particulars

A

B

B's Capital A/c

6,000

Balance b/d

1,50,000

90,000

(Adjustment of profit)

 

 

A's Capital A/c

6,000

A's Capital A/c

9,000

(Adjustment Profit)

 

 

(Adjustment of Goodwill)

 

 

B's Capital A/c

9,000

Balance c/d

1,53,000

87,000

(Adjustment of Goodwill)

 

 

 

1,59,000

96,000

 

1,59,000

96,000

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (A and B) = 2 : 1

New Ratio (A and B) = 3 : 2

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

A's ratio = `2/3 - 3/5 = (10-9)/15 = 1/15` (sacrifice)

B's ratio = `1/3 - 2/5 = (5-6)/15 = (-1)/15` (gain)

WN 2 Adjustment of Profit for 2016-17

Profit to be debited to A's capital A/c = `90,000 xx 1/15` (share of sacrifice)

                                                            = Rs 6,000

Profit to be debited to B's capital A/c = `90,000 xx 1/15` (share of Gain)

                                                            = Rs 6,000

WN 3 Calculation of New Goodwill

Goodwill = profit of 2014-15 + profit of 2015-16

               = 60,000 + 75,000

               = Rs 1,35,000

WN 4 Adjustment of Goodwill

Goodwill to be debited to A's capital A/c = `1,35,000 xx 1/15` (share of sacrifice)

                                                                  = Rs 9,000

Goodwill to be credited to B's capital A/c = `1,35,000 xx 1/15` (share of sacrifice)

                                                                  = Rs 9,000

  Is there an error in this question or solution?

APPEARS IN

Solution A And B Are Partners in a Firm Sharing Profits in the Ratio of 2 : 1. They Decided with Effect from 1st April, 2018, that They Would Share Profits in the Ratio of 3 : 2 Concept: Retirement and Death of a Partner - Calculation of New Profit Sharing Ratio.
S
View in app×