Notes And Questions NCERT Class 12 Accountancy Chapter 4  Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Please refer to Reconstitution of a Partnership Firm – Retirement/Death of a Partner Class 12 Accountancy notes and questions with solutions below. These revision notes and important examination questions have been prepared based on the latest Accountancy books for Class 12. You can go through the questions and solutions below which will help you to get better marks in your examinations.

Class 12 Accountancy Reconstitution of a Partnership Firm – Retirement/Death of a Partner Notes and Questions

RECONSTITUTION OF PARTNERSHIP FIRM CHANGE IN PROFIT – SHARING RATIO

UNITS/TOPICS
– Sacrificing Ratio
– Gaining Ratio
– Accounting for revaluation of assets and reassessment of liabilities
– Treatment of reserves and accumulated profits
– Preparation of revaluation account and Balance Sheet
Reconstitution of a Partnership Firm Partnership is the result of an agreement between persons for sharing the profits of a business. Any change in the partnership agreement brings to an end the existing agreement and a new agreement comes into force. The change in the agreement results in changes in the relationship among the partners. In such a case, although the firm continues, it amounts to the reconstitution of the part-nership firm.

Reconstitution of the firm may happen in the following circumstances:
→ Change in Profit sharing ratio among partners.
→ Admission of a new partner
→ Retirement and Death of Partner
→ Sale of Business to others.
→ Amalgamation of firms.

(i) Change in the profit-sharing ratio among the existing partners: For example, A and B are partners in a firm sharing profits in the ratio of 2:1. In future, they decide to share profits in the ratio of 3:1. It amounts to reconstitution of the firm.
(ii) Admission of a new partner: For example, Charu and Dinesh are partners sharing profits equally. On April 1, 2019, they decided to admit Sudha as a new partner with l/4th share. It results into reconstitution of the firm.
(iii) Retirement of an existing partner: For example, Babita, Gita and Sita are partners sharing profits in the ratio of 1 : 2 : 3. Sita Retires from the firm on March 31, 2019. It amounts to reconstitution of the firm.
(iv) Death of a Partner: For example, P, Q and R are partners In a firm sharing profits in the ratio of 4:3 :2. R dies on March 31, 2019. P and Q decide to share future profits equally. It also amounts to reconstitution of the firm.
(v) Amalgamation of two partnership firms: For example, Λ and B are partners in a firm sharing profits in the ratio of 2 : 1. To eliminate competition they amalgamate their firm with the firm of C and D who are sharing profits in the ratio of 3 : 1. The new ratios for A, B, C and D are agreed at 2 : 1 : 3 : 1. It amounts to reconstitution of the firm of A and B on the one hand and the firm C and D on the other hand and a new reconstituted firm is formed.

Change in Profit Sharing Ratio Among the Existing Partners:
Sometimes the existing partners decide to change their profit -sharing ratio. The change is necessitated due to the change in capital contribution or in active participation in management. As a result of change in profit sharing ratio, one or more of the existing partners may acquire extra share in profits at the cost of one or more of other partners. In such a case, in order to maintain equity among the partners, it is necessary to make adjustments for goodwill, revaluation of assets and liabilities, reserves, accumulated profits and losses etc. These adjustments are similar to those made at the time of admission or retirement of a partner.

Adjustments required at the time of change in the profit sharing ratio:
– Determination of Sacrificing Ratio and Gaining Ratio
– Accounting for Goodwill
– Accounting Treatment of Reserves and Accumulated Profits
– Accounting for Revaluation of Assets and Liabilities
– Adjustment of Capitals

Sacrificing Ratio
Whenever there is a change in the profit- sharing ratio, one or more of the existing partners have to surrender some of their old share in favour of one or more of other partners. The ratio of surrender of profit -sharing ratio is called sacrificing ratio. It is calculated as follows:

Sacrificing Ratio = Old Ratio – New Ratio

The purpose of calculating sacrificing ratio is to determine the amount of compensation to be paid by the gaining partner (i.e., the partner whose share has increased as a result of change) to the sacrificing partner (i.e., the partner whose share has decreased as a result of change). Such compensation is usually paid on the basis of proportionate amount of goodwill.

Gaining Ratio
As a result of change in profit sharing ratio, one or more of the existing partners gain some portion of other partner‘s share of profit. The ratio of gain of profit- sharing ratio is called gaining ratio. It is calculated as follows:

Gaining Ratio = New Ratio – Old Ratio

– ACCOUNTING TREATMENT OF GOODWILL
Goodwill to be adjusted through partners’ capital/current accounts or by raising and writing off good-will
– Treatment of existing Goodwill appearing in the Balance Sheet:
Journal entry:

TREATMENT OF NEW GOODWILL
– Method 1: When goodwill is adjusted through partners’ capital /current accounts
Journal Entry:

– Accounting treatment of Reserves and Accumulated profits
– Case (i) When Reserves and Accumulated Profits/Losses are to be transferred to Capital Ac-counts:
– Reserves or Accumulated profits/losses existing in the books of the firm, should be transferred to the Partner‘s Capital Accounts (if capitals are fluctuating) or to Current Accounts (if capitals are fixed) in their old profit sharing ratio.
– Following entries are passed for this purpose:

For Transfer of Reserves and Accumulated Profits:

(ii) For transfer of Accumulated Losses:

Treatment of Workmen Compensation Reserve:
This reserve is created out of firm‘s profits to pay compensation to employees. It is treated as follows:
– If there is no claim against Workmen Compensation Reserve:
In such a case, the entire amount of Workmen Compensation Reserve is credited to the Capital Accounts of partners in their old profit sharing ratio:

The Journal Entry passed is:

– If the claim for workmen compensation is lower than the amount of Workmen Compensation Reserve:
The amount of claim is credited to Provision for Workmen Compensation Claim A/c‘ and balance is credited to the Capital Accounts of partners in their old profit sharing ratio

(Suppose Workmen Compensation Reserve is Rs 50,000 and liability for claim is Rs20,000). The Journal Entry passed is:

– If the claim is equal to Workmen Compensation Reserve:
Entire amount of Workmen Compensation Reserve is transferred to Provision for Workmen
Compensation Claim A/c :

– If the claim is more than the amount of Workmen Compensation Reserve:
Entire amount of Workmen Compensation Reserve along with the excess claim is credited to Provision for Workmen Compensation Claim A/c‘. The amount of excess claim is debited to Revaluation Account‘ be-cause the loss must be borne by partners in their old profit sharingratio.

(Suppose Workmen Compensation Reserve is ` 50,000 and liability for claim is ` 60,000).

The Journal entries passed are:

(ii) Partners‘ Capital A/c Dr. 10,000
To Revaluation A/c 10,000
(Loss on revaluation transferred to capital accounts of partners in their old profit sharing ratio)
TREATMENT OFINVESTMENT FLUCTUATION RESERVE
This reserve is created out of firm‘s profits to meet the fall in the market value of investments.
This reserve is treated as follows:
– When Book Value and Market Value of Investments is same:
The entire amount of Investment Fluctuation Reserve is transferred to the Capital Accounts of partners in their old profit sharing ratio.

– When Market value of Investments is less than the Book Value:
In such a case, the accounting treatment depends on the quantum of decrease. There may be three possibilities:

(i) Fall in the value is Less Than Investment Fluctuation Reserve:
In such a case, Investment Fluctuation Reserve, to the extent of fall in value, is credited to Investments A/c and the balance is credited to Partner‘s Capital A/c in their old profit sharing ratio. (EX: Investment Fluctuation Reserve is Rs20,000; Investment at Book Value Rs 50,000 ; Market value Rs45,000)

*(50,000 – 45,000 )= 5,000 i.e Book value – Market Value

(ii) Fall in the value is Equal to Investment Fluctuation Reserve:
In such a case, entire amount of Investment Fluctuation Reserve is credited to Investments A/c. (EX: Investment Fluctuation Reserve is Rs20,000; Investment at Book Value Rs 50,000 ; Market value Rs30,000)
The entry is:

(iii) Fall in the value is more than Investment Fluctuation Reserve:
In such a case, entire amount of Investment Fluctuation Reserve, along with the amount of excess fall in value is credited to Investments A/c. The amount of excess fall is debited to Revaluation A/c because the loss must be borne by the partners in their old profit sharing ratio.(EX: Investment Fluctuation Re-serve is Rs10,000; Investment at Book Value Rs 50,000 ; Market value Rs35,000) The entries are:

(b) Partner‘s Capital A/c Dr. (In old ratio)
To Revaluation A/C (being revaluation loss)

3. When Market Value of Investments is more than the Book value:
(EX: Investment Fluctuation Reserve is Rs10,000; Investment at Book Value Rs 50,000 ; Market value Rs55,000)
In such a case entries passed are : (i)

* Increase in the value of Investments is debited to Investments A/c and credited to Revaluation A/c
(ii) Revaluation A/c Dr.
To Partner‘s Capital A/c (being revaluation profit In old ratio)

Accounting for Revaluation of Assets and Liabilities :

Assets and liabilities of a firm must also be revalued at the time of change in profit sharing ratio of existing partners. The reason is that the realizable or actual value of assets and liabilities may be different from those shown in the Balance Sheet. It is possible that with the passage of time some of the assets might have appre-ciated in value while the value of certain other assets might have decreased and no record has been made of such changes in the books of accounts. Revaluation of assets and liabilities becomes necessary because the change in the value of assets and liabilities belongs to the period prior to change in profit sharing ratio and hence must be shared by the partners in their old profit-sharing ratio.
Steps to be followed in reconstitution of partnership

Step 1 Distribute all the reserves,accumulated profits or losses or any other balance of surplus in the old profit sharing ratio.

Step 2 Now, find the sacrificing ratio and gaining ratio of the existing partners with the help of the following formulae:
o Sacrificing ratio = Old ratio – New ratio
o Gaining ratio = New ratio – Old ratio

Step 3 Find the goodwill of the firm by any of the methods

Step 4 Revaluate the assets and liabilities (if any) .Distribute the profit or loss on revaluation of as-sets and liabilities (if any) among all existing partners in their old profit sharing ratio

Step 5 Debit the capital of gaining partners with the gaining proportion of the goodwill and credit the capital of sacrificing partner with the proportionate sacrifice amount of goodwill.

After this process, transfer the balance of revaluation account to the existing partner’s capital accounts.

Preparation of Revaluation Account

Revaluation Account is opened to transfer the revalued amount of Assets and Liabilities
(i) Debit the revaluation a/c if assets decrease or liabilities increase
(ii) Credit the revaluation a/c if assets increase or liabilities decrease

After this process, transfer the balance of revaluation account to the existing partner’s capital accounts.

– Only one will appear at a Time.

Balance Sheet
Now the Balance Sheet is prepared with the help of adjusted capital accounts and revalued assets and lia-bilities.

Question. The excess amount which the firm can get on selling its assets over and above the saleable value of its assets is called:
(A) Surplus
(B) Super profits
(C) Reserve
(D) Goodwill

Question. Assets are revalued and liabilities are reassessed at the time of change in profit sharing ratio so that
(a) assets and liabilities are shown at their present values
(b) no partner is put to an advantage or disadvantage
(c) sacrificing partner is partly compensated
(d) assets and liabilities are shown at their market value.

Question. A,B and C are partners sharing profits in the ratio of 5:3:2. They decided to share future profits in the ratio of 2:3:5. Workmen compensation Reserve appearing in Balance Sheet on that date when no information as to workmen compensation claim is given will be
(a) distributed among partners in their capital ratio
(b) distributed among partners in their new profit sharing ratio
(c) distributed among partners in their old profit sharing ratio.
(d) carried forward to new Balance Sheet.

Question. A and B are partners sharing profits in the ratio of 3:2. They changed their profit sharing ratio to 2:3 w.e.f 1st April,2021. The Balance Sheet as on the date of change in profit sharing ratio showed credit balance in profit and loss a/c of Rs.1,00,000,which the partners decide to carry forward and not distribute. The balance of Rs.1,00,000 will be adjusted by
(a) crediting A’s capital a/c and debiting B’s capital a/c by Rs.1,00,000
(b) crediting A’s capital a/c and debiting B’s capital a/c by Rs.20,000
(d) debiting A’s capital a/c and debiting B’s capital a/c by Rs.1,00,000
(b) debiting A’s capital a/c and debiting B’s capital a/c by Rs.20,000

Question. Any change in the relationship of existing partners which results in an end of the existing agreement and enforces making of new· agreement is called:
(a) Revaluation of partnership
(b) Reconstitution of partnership
(c) Realisation of partnership
(d) None of the above

Question. A and B are partners in a firm sharing profits in the ratio of 3 : 2. They decided to share fu-ture profits equally. Calculate A’s gain or sacrifice
(a) 2/10 (sacrifice)
(b) 5/10 (gain)
(c) 1/10 (Gain)
(d) 1/10 (sacrifice)

Question. In case of change in profit-sharing ratio, the gaining partner must compensate the sacrificing partners by paying the proportional amount of
(a) capital
(b) cash
(c) goodwill
(d) none of the above

Question. In case of change in profit-sharing ratio, the accumulated profits are distributed to the partners in
(a) new ratio
(b) old ratio
(c) sacrificing ratio
(d) equal ratio

Question. A partnership is reconstituted due to change in profit sharing ratio.State whether True or False
TRUE

Question. A,B and C are sharing profits in the ratio of 3:2:1.They decided to share equally in future .B’s has neither sacrificed nor gained . State whether True or False
TRUE

Question. A,B and C were are partners in a firm sharing profits in the ratio of 3:4:1 .They decided to share profits equally w.e.f from 1 .4.2019. On that date the profit and loss account showed the credit balance of 96,000.instead of closing the profit and loss account ,it was decided to record an adjustment entry reflecting the change in profit sharing ratio .In the journal entry:
(a) Dr. A by 4,000; Dr. B by 16,000; Cr C by 20,000
(b) Cr. A by 4,000; Cr. B by 16,000; Dr C by 20,000
(c) Cr. A by 16,000; Cr. B by 4,000; Dr C by 20,000
(d) Dr. A by 16,000; Dr. B by 4,000; Cr C by 20,000

Question. Increase in the value of assets and decrease in the value of liabilities result in ……………for the existing partners and should be ……….to P/L Adjustment a/c
GAIN,CREDITED

Question. Out of the following which is not a part of change in profit sharing ratio
(a) Determination of sacrificing and gaining ratio
(b) Accounting of goodwill
(c) Accounting of reserves, accumulated profits and losses
(d) Dissolution of partnership firm

Question. Ankita and Neha are sharing profits in the ratio of 2:1.Now they have decided that new profit sharing ratio will be equal. What will be the Gain/Sacrifice ratio?
(a) Ankitagain1/6and Nehasacrifice1/6
(b) Ankitasacrifice1/6andNehagain1/6
(c) Ankita gain 4/5 and Neha sacrifice 4/5
(d) Ankitasacrifice2/3andNehagain1/6

Question. In which of the following situation, partner’s capital a/c is credited?
(a) Transfer of accumulated profit or reserves
(b) Transfer of revaluation loss
( c) Writing off the existing book value of goodwill
(d) All of the above

Short Answer Questions

Read the passage below and answer the questions given:

Question. Mohan and Sohan, two college friends started a restaurant business in partnership sharing profit and loss in the ratio of 3:2 in the year 2019. Mohan also had a family business of gar-ments, which he took over after his father’s death. As a result, he devoted less time to the res-taurant. Sohan, being his best friend understood this and supported him fully.
However, in the year 2020, due to Covid-19, the restaurant business slowed down Sohan ap-proached Mohan and suggested that they share profits equally.
Mohan readily agreed to it.
The Goodwill of the firm was valued at Rs. 30,000. Also, there is a Workmen Compensation Reserve and General Reserve of Rs. 90,000 and Rs.12,000 respectively.
1.What single adjusting entry will be passed for goodwill adjustment?
2.What journal entry will be passed in case there is a claim on Workmen Compensation Re-serve of Rs. 45,000 ?
3.What journal entry will be used for General Reserve?
Answer.1. Debit Sohan and Credit Mohan by Rs 3.000
2. Workmen Compensation Reserve A/c Dr. 90,000
To claim on Workmen Compensation Reserve A/c 45,000
To Mohan’s capital A/c 27,000
To Sohan’s capital A/c 18,000
3. General reserve A/c Dr. 12,000
To Mohan’s capital A/C 7,200
To Sohan’s capital A/C 4,800

Question. Bhavna and Rajiv were partners in a partnership firm carrying on a restaurant in Kolkata. Bhavna noticed that a lot of food is left at the end of the day. To avoid wastage, she suggested that it can be distributed to the needy. Rajiv wanted that it should be mixed with the food being served in the next day. Rajiv then give a proposal that if his share in the profit in-creased, he will not mind free distribution of leftover food. Bhavna happily agreed. So, they decided to change their profit-sharing ratio 1:2 with immediate effect. On that day revalua-tion of assets and reassessment of liabilities was carried out that resulted into again of Ra. 18,000. On that date the good will of the firm wasvaluedatRs.1,20,000.

Based on the above in formation, you are required to answer the following questions:

1.Sacrifice/Gain of Bhavna and Rajiv will be
2. At thetimeofchangeinProfitSharingratio,gaining partnercapitalaccountis
……………………andsacrificingpartneris …………………… foradjustmentofGoodwill.
Answer.1.A. Bhavna sacrifice1/6,Rajiv Gain1/6
2. B. Debited, Credited

Question. Joseph and Monu were partners in a firm carrying on a tiffin service in Mumbai. Joseph noticed that a lot of food is left at the end of the day. To avoid wastage, she suggested that it should be distributed to the needy. Monu wanted that it should be mixed with the food being served the next day. Monu then gave a proposal that if his share in the profit is increased, he will not mind free distribution of left over food. Joseph happily agreed. So they decided to change their profit sharing ratio to 2:3 with immediate effect. On that date, revaluation of assets and reassessment of liabilities was carried out that resulted into a profit of ₹8,000. On that date, the good will of the firm was valued as₹30,000.

1. Profit on revaluation will be :
(A) Debited to capital account of partners in 2:3
(B) Debited to capital account of partners in
(C) 1:1
(D) Credited to capital account of partners in 2:3 
(E) Credited tocapital account of partner sin 1:1

2. Sacrifice/Gain of Joseph and Monu will be:
(A) Josephsacrifice1/10,Monugains1/10
(B) Monusacrifice1/10,Josephgains1/10
(C) OnlyJosephgain1/10
(D) OnlyMonusacrifice1/10

3 At the time of change in profit sharing ratio, gaining partner capital is and Sacrificing partner is _for adjustment of goodwill.
(A) Credited, Debited
(B) Debited, Credited
(C) Increased, Decreased
(D) Decreased, Credited

4 The journal entry for adjustment of goodwill will be
(A) Monu’s capitalA/c      Dr.     30,000
To Joseph’s capitalA/c              30,000
(B) Joseph’scapital A/c    Dr. 15,000
To Monu’s capital A/c           15,000
(C) Monu’s capitalA/c      Dr. 3,000
To Joseph’s capitalA/c          3,000
(D) Joseph’s capitalA/c    Dr. 27,000
To Monu’s capitalA/c             27,000

Question. Nithya and Anand are partners in a firm sharing profits and losses equally. With effect from 1st April,2022, they decided to share profits in the ratio of 3:2. On the date of change in the profit sharing ratio, he profit and loss A/c had a credit balance of Rs.1,50,000.
Pass necessary journal entry for the distribution of the balance in the profit & loss A/c before the change in the profit sharing ratio.
Answer.Profit & Loss A/c Dr 1,50,000
To Nithya’s capital A/c 75,000
To Anand’s capital A/c 75,000

Question. Karthik and Amit were partners in a firm carrying on a tiffin service in Delhi. Karthik no-ticed that a lot of food is left at the end of the day. To avoid wastage he suggested that it can be distributed to the needy, Amit wanted that it should be mixed with the food being served the next day.
Amit then gave a proposal that if his share in the profit increased, he will not mind free distri-bution of left over food. Karthik happily agreed. So, they decided to change their profit shar-ing ratio 1:2 with immediate effect. On that date, revaluation of assets and reassessment of liabilities was carried out that resulted into a gain of Rs.36,000 On that date the goodwill of the firm was valued at Rs.2,40,000
1. Sacrifice/gain of Karthik and Amit will be
2. At the time of change in profit sharing ratio, gaining partner’s capital a/c is——– and sac-rificing partner’s capital a/c is —————– for adjustment of goodwill
3. Pass the journal entry for adjustment of goodwill
Answer.1. Karthik sacrifice 1/6, Amit gains 1/6
2. debited, credited
3 Amit’s capital A/c Dr 40,000
To Karthik’s capital A/c 40,000

Question. What adjustments are required at the time of reconstitution of a partnership firm ?
Answer.Following adjustments are required at the time of reconstitution of a partnership firm:
(i) Determination of sacrificing ratio
(ii) Accounting for Goodwill
(iii) Accounting treatment of reserves and accumulated profits
(iv) Accounting for revaluation of assets and liabilities
(v) Adjustment of capitals

Question. Any changes in the relations of partnership will result in the reconstitution of the partnership firm. Why are reserves and surplus distributed among the partners into existing profit-sharing ratio.
Answer.Reserves and accumulated profits are credited to the capital accounts of all partners in their old profit sharing ratio because they have been set apart out of the profits earned in the period before change. If they are not adjusted , they will get adjusted later in the new profit sharing ratio which will result in loss to the sacrificing partner and gain to the gaining partner.

Question. A and B are partners sharing profits and losses in the ratio of 3:1. It was decided that with effect from 1st April,2021 the profit sharing ratio will be 5:3. Goodwill is to be valued at 2year’s purchase of average of 3years profits. The profits for the years ending 31st March 2019,2020 and 2021 were Rs.36,000 , Rs.32,000 and Rs.40,000 respectively.
Pass the necessary journal entry for the treatment of goodwill.
Answer.B’s capital A/c Dr 9000
To A’s capital A/ 9000

Question. A, B and C are partners sharing profits and losses in the ratio of 5:3:2. A was unable to devote time to business due to her other commitments. Therefore adjustments were required in the agreed terms of partnership. They decided to share future profits and losses in the ratio of 2:3:5. With effect from 1st April,2021.The values of assets and liabilities did not require any adjustments. However, an unrecorded computer of value Rs.60,000 and a claim of a customer of Rs.30,000 was to be brought in the books. The balance sheet has goodwill of Rs.10,000 as an asset, other assets(excluding goodwill were Rs.6,00,000 whereas liabilities were Rs.50,000.
Normal rate of return is 15% and average profit is Rs.90,000.
1. Calculate Goodwill under capitalisation of average profit will be
2. Calculate Sacrificing and gaining ratio of the partners
3. Who is neither a gaining nor a sacrificing partner
Answer.(1) Rs.20,000
(2) A-3/10 (sacrifice), B-nil, c-3/10(gain)
(3) B

Question. Sonu and Monu are partners in a firm sharing profits in the ratio of 3:2. With effect from 1st April,2022 they agreed to share profits equally. For this purpose goodwill of the firm is valued at Rs.75,000. You are required to fill up the following journal entry:
Monu’s capital A/c Dr ——–
To Sonu’s capital A/c —-
Answer.
Monu’s capital A/c (7500 x 1/10) 7500
To Sonu’s capital A/c 7500
(Adjustment made for goodwill on change in
The profit sharing ratio)

LONG ANSWER QUESTIONS

Question. A and B are partners in a firm, sharing profits and losses in the ratio of 3:2. On 31st March,2018 their Balance Sheet was as under:
Balance Sheet of A and B
As at 31st March,2018

The partners have decided to change their profit sharing ratio to
1:1 with immediate effect. For this purpose, they decided that
(a) Investments to be valued at Rs.20,000
(b) Goodwill of the firm valued at Rs.24,000
(c) General Reserve not to be distributed between the partners.
You are required to pass necessary journal entries in the books of the firm.
Answer.

Question. S,T,U and V were partners in a firm sharing profits in the ratio of 4:3:2:1. On 1.4.2016 their Balance Sheet was as follows:

From the above date partners decided to share the future profits in 3:1:2:4 ratio. For this purpose the goodwill of the firm was valued at Rs.90,000. The partners also agreed for the following:
(i) The claim for workmen compensation has been estimated at Rs.70,000
(ii) To adjust the capitals of the partners according to new profit sharing ratio by open-ing partners current accounts
Prepare Revaluation A/c, partners capital Accounts and the Balance Sheet of the reconsti-tuted firm.
Answer.

Question. A and B are partners in a firm having2:1 profit sharing ratio. On April2013, they agreed to share profits and losses equally. On this date, they decided to revalue assets as follows:
                                Book value         Revised Value
Land and Building      400000              550000
Machinery                 200000              220000
Furniture                  50000                40000
Debtors                    60000                55000
Partners also decided to record net effect of the revaluation of assets and reassessment of liabil-ities without affecting their book value by passing a single adjustment entry. Pass the adjust-ment entry.
Answer.

Working Note
Rs.1,55,000 x 1/6 = Rs.25,833
Sacrificing ratio = Old ratio – New Ratio
A= 2/3 -1/2 = 1/6 (sacrifice)
B = 1/3- ½ = – 1/6(gain)
Increase in value of land and building 150000
Increase in value of Machinery 20000
Decrease in value of Furniture – 10000
Decrease in value of Debtors – 5000
Net effect 1,55,000 (profit)

Question. A, B and C were partners in a firm sharing profits in the ratio of 3:2:1. Their Balance Sheet as on 31st March,2015 was as follows:
Balance Sheet of A,B and C
As at 31st March,2015

A, B and C decided to share the future profits equally, w.e.f 1st April,2015.For this it was agreed that:
(i) Goodwill of the firm be valued at Rs.300000
(ii) Land be revalued at Rs.1,60,000 and building be depreciated by 6%
(iii) Creditors of Rs.12,000 were not likely to be claimed and hence written off.
Prepare Revaluation A/c, Partner’s Capital A/c and Balance sheet of the reconstituted firm.
Answer.

Question. B,C and D are partners sharing profits and losses in the ratio of 3:2:1.Their Balance sheet as at 31st March 2021 was as follows:

The partners agreed that from 1st April,2021 they will share profits and losses in the ratio of 4:4:1. They agreed that
(i) Stock is to be valued at 20% less
(ii) Provision for doubtful debts to be increased by Rs.1500/-
(iii) Furniture is to be depreciated by 20% and plant by 15%
(iv) Rs.3500/- are outstanding for salaries
(v) Building is to be valued at Rs.3,50,000
(vi) Goodwill is valued at Rs.45,000
Partners do not want to record the altered values of assets and liabilities in the books and want to leave the reserves and profits `undisturbed.You are required to pass journal entry to give ef-fect to the above. Also prepare the revised balance sheet
Answer.Workings:
Loss due to decrease in value of stock 36000
Loss due to provision for doubtful debts 1500
Loss due to decrease in value of furniture 6000
Loss due to decrease in value of plant 30000
Loss due to unrecorded liability 3500 77000
Profit due to increase in value of Building 50000
Loss on revaluation ——–
27000
Adjustment of Reserves 42000
Adjustment for profit & loss 21000
Adjustment for goodwill 45000
Net amount to be adjusted 81000
Sacrifice/Gain ratio
B = 3/9-4/9 = 1/18 (sacrifice)
C = 2/6-4/9 = 2/18 (gain)
D = 1/6-1/9 = 1/18 (sacrifice)
Journal entry
C’s capital A/c Dr 9000
To B’s capital A/c 4500
To D’s Capital A/c 4500
Balance Sheet as at 1st April, 2021

Question. L,M and N were partners in a firm sharing profits in the ratio of 2:3:5. From 1st April 2018 they decided to share the profits in the ratio of 1:2:2. On this date, the Balance Sheet showed a credit balance of Rs.1,17,000 in general reserve and a debit balance of Rs.35,000 in Profit and Loss account. The goodwill of the firm was valued at Rs.5,00,000. The revaluation of assets and reassessment of liabilities resulted into a gain of Rs.30,000.
Pass necessary journal entries for the above information on the reconstitution of the firm.
Answer.

Question. Ram, Shyam and Hari were in partnership sharing profits in the ratio of 3 : 2 : 1. The Balance Sheet as at 31.3.2013 was as follows :

On 1.4.2013 partners decided to share profits equally.
For this purpose it was further agreed that. Goodwill of the firm should be valued at Rs 30,000. Furniture and Machinery is to be revalued at Rs 25,000 and Rs 35,000 respectively. Value of Stock is to be reduced by Rs 4,000. You are required to give necessary journal entries to give effect to the above arrangement and prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of the firm after reconstitution.
Answer.

Question. A, B and C are partners sharing profits and losses in the ratio 5:3:2. Their Balance Sheet as at 31st March,2022 stood as follows:
Balance Sheet of A,B and C
As at 31st March,2022

They agreed to share profits and losses in the ratio of 2:2:1 w.e.fist April 2022. on the following terms.
(i) Land & Building be appreciated by 10%
(ii) Machinery be reduced by 15%
(iii) Stock be increased to Rs.1,00,000
(iv) Provision for doubtful debts be created @ 5% on sundry debt-ors
(v) A creditor of Rs.5000 is not to claim his dues
(vi) A claim on account of workmen compensation is Rs.10000
(vii) An expense of Rs.2000 was paid by the firm for getting the value of Land and Building certified from a Chartered Engi-neer. Pass the journal entry and Revaluation Account
Answer.

Question. Ram, Shyam and Mohan sharing profits and losses in the ratio of 4:3:2, decide to share future profits and losses in the ratio of 2:3:4 with effect from 1st April,2022. An extract of their Balance Sheet as at 31st March,2022 is

Show the accounting treatment under the following alternative cases: 1. When no information as to claim is given\ 2. When there is no claim 3. When a claim on account of workmen compensation is Rs.45,000 4. When a claim on account of workmen compensation is Rs.99,000 5. When a claim on account of workmen compensation is Rs.90,000
Answer.

Question. Ram, Shyam and Mohan sharing profits and losses in the ratio of 4:3:2, decide to share future profits and losses in the ratio of 2:3:4 with effect from 1st April,2022. An extract of their Bal-ance Sheet as at 31st March,2022 is

Show the accounting treatment under the following alternative cases
1. When there is no other information
2. When market value of investments is Rs.2,00,000
3. When market value of investments is Rs.1,91,000
4. When market value of investments is Rs,2,18,000
5. When market value of investments is Rs.1,73,000
Answer.