What is meant by change in profit sharing ratio?

1

(a)

Change in the profit sharing ratio means that one partner is purchasing from another a share of profit which previously belonged to the former.

What is meant by sacrificing partner?

1

(a)

The partner whose share of profit has been reduced due to change in profit sharing ratio is called sacrificing partner.

Give two circumstances in which sacrifice ratio may be applied.

1

(a)

(i) At the time of admission of a partner (ii) Change in profit sharing ratio among the existing partners.

Who should compensate to whom in case of a change in profit sharing ratio of existing partners?

1

(a)

The gaining partners should compensate the losing partners unless otherwise agreed upon.

Why are the 'Reserve and Surplus' distributed at the time of reconstitution of the firm?

1

(a)

As 'Reserve and Surplus' belong to the old partners in their old profit sharing ratio, therefore, these are distributed at the time of reconstitution of the firm.

State the ratio in which the partners share profits or losses on revaluation of assets and liabilities, when there is a change the profit sharing ratio amongest existing partners? 

1

(a)

Profit or Loss arising from revaluation of assets and liabilities is shared by old partners in their old profit sharing ratio.

State the ratio in which the partners share the accumulated profits when there is a change in the profit sharing ratio amongest existing partners.

1

(a)

Old profit sharing ratio.

Anant, Gulab and Khushbu were partners in a firm sharing profits in the ratio of 5:3:2. From 1.4.2014, they decided to share the profits equally. For this purpose the goodwill of the firm was valued at Rs.2,40,000. 

Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Anant, Gulab and Khushbu.

1

(a)

Gulab's gain 1/30, Khushbu's gain 4/30 and Anant's sacrifice 5/30 Dr.Gulab's capital A/c by Rs.8000 and Khushbu's capital by Rs.32,000, Cr anant's capital by Rs.40,000.