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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.
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Solution
Journal
|
Date |
Particulars |
L.F. |
Debit Amount (₹) |
Credit Amount (₹) |
|
|
2018 |
|
|
|
|
|
|
|
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
