Question

P, Q, and R were partners in firm sharing profits in the ratio of 1 : 1: 2. On 31^st March 2018, their balance sheet showed a credit balance of ₹ 9,000 in the profit and loss account and a Workmen Compensation Fund of ₹ 64,000. From 1^st April 2018, they decided to share profits in the ratio of 2: 2: 1. For this purpose, it was agreed that:
(a) Goodwill of the firm was valued at ₹ 4,00,000.
(b) A claim on account of workmen compensation of ₹ 30,000 were admitted.
Pass necessary journal entries on the reconstitution of the firm.

Answer 1

Journal of P, Q & R 

Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2018
April 01	Profit & Loss A/c	Dr.		9,000
	To P’s Capital A/c				2,250
	To Q’s Capital A/c				2,250
	To R’s Capital A/c				4,500
	(Being credit balance of P & L distributed among the old partners in the old profit sharing ratio)
April 01	Workmen Compensation Fund A/c	Dr.		64,000
	To Workmen Compensation Claim A/c				30,000
	To P’s Capital A/c				8,500
	To Q’s Capital A/c				8,500
	To R’s Capital A/c				17,000
	(Being claim against workmen compensation admitted and balance credited to Partners’ Capital in the old profit sharing ratio)
April 01	P’s Capital A/c	Dr.		60,000
	Q’s Capital A/c	Dr.		60,000
	To R’s Capital A/c				1,20,000
	(Being the adjustment made on account of change in Profit Sharing Ratio on the basis of revalued goodwill of the firm)

Working Notes:

(1) Computation of Sacrifice/Gain to partners on account of change in Profit Sharing Ratio

Calculation of Gain/Sacrifice

		P	Q	R
I.	Old Share	1/4	1/4	2/4
II.	New Ratio	2/5	2/5	1/5
III.	Sacrifice/(Gain) (I – II)	1/4 – 2/5	1/4 – 2/5	2/4 – 1/5
		5/20 – 8/20	5/20 – 8/20	10/20 – 4/20
		–3/20	–3/20	6/20
		Gain	Gain	Sacrifice

(2) Computation of amount to be compensated to sacrificing partner by the gaining partners
Revalued Goodwill = ₹ 4,00,000

P will pay to R = 4,00,000 × `3/20` = ₹ 60,000;

Q will pay to R = 4,00,000 × `3/20` = ₹ 60,000;

R will receive from P and Q = 4,00,000 ×` 6/20` = ₹ 1,20,000.