Question

X, Y and Z are partners sharing profits and losses in the ratio of 6 : 3 : 1. They admitted W into partnership with effect from 1st April, 2019. New profit-sharing ratio between X, Y, Z and W was agreed to be 3 : 3 : 3 : 1. They also decide to record the effect of the following revaluations without affecting the book values of the assets and liabilities by passing an adjustment entry:

	Book Values (₹)	Revised Values (₹)
Plant and Machinery	3,50,000	3,40,000
Land and Building	5,00,000	5,50,000
Trade Creditors	1,00,000	90,000
Outstanding Expenses	85,000	1,00,000

Pass necessary adjustment entry.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	Z’s Capital A/c	Dr.		7,000
	W’s Capital A/c	Dr.		3,500
	To X’s Capital A/c				10,500
	(Adjustment entry made)

Working Notes:
WN 1: Gain/Loss on Revaluation
Gain/Loss = Land & Building + Trade Creditors − Plant & Machinery − Outstanding Expenses
Gain/Loss = 50,000 + 10,000 − 10,000 − 15,000 = 35,000

WN2 :Calculation of Sacrifice or Gain
X : Y : Z = 6 : 3 : 1 (Old Ratio)
X : Y : Z : W = 3 : 3 : 3 : 1 (New Ratio)
Sacrificing (or Gaining ) ratio = Old Ratio - New Ratio
X's Share = `6/10 - 3/10 = [ 6 -3 ]/10 = 3/10` ( Sacrifice )

Y's Share = `3/10 - 3/10 = [ 3 - 3]/10 = 0`

Z's Share = `1/10 - 3/10 = [ 1 - 3]/10 = -2/10` ( Gain )

Y's Share = `1/10`( Gain )

WN 3: Adjustment of Revaluation Profit
Amount credited in X's Capital A/c = 35,000 x `3/10` = Rs. 10,500.

Amount credited in Z's Capital A/c = 35,000 x `2/10` = Rs. 7,000.

Amount credited in W's Capital A/c = 35,000 x `1/10` = Rs. 3,500.