From the chapter Change in Profit Sharing Ratio Among the Existing Partner, some of the important questions are covered in this question paper. The questions are covers from the book back and the previous year questions.

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Questions:

Generic 3

4 x 3 = 12

R,O and M are sharing profits and losses in the ratio 5:3:2 They decide to share future profits and losses in the ratio of 2:3:5 with effect from 1st April ,2015.They also decided to record the effect of following revaluations without affecting the book values of the assets and liabilities,by passing a single adjusting entry.

Particulars	Book figure(Rs)	Revised Figure(Rs)
Land and Building	1,20,000	1,80,000
Plant and macheinery	1,80,000	1,68,000
Trade Creditors	60,000	54,000
Outstanding expenses	54,000	72,000

Identify the value being communicated by the partners.

In which ratio is goodwill already existing in the books of account written-off?

Which Accounting Standard states that goodwill is to recorded in the books only when some consideration in money or money's worth has been paid for it?

Anita, Asha and Amrit are partners sharing profits in the ratio of 3:2:1 respectively. From 1st January 2010, they decided to share profits in the ratio of 1:3:2. The partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at three years purchase of the average of five years profits. The profits and losses of the preceding five years are: Profits 2005-Rs 1,20,000; -Rs 3,00,000; 2007-Rs 3,40,000; 2008-Rs 3,80.000; 2009-Rs 1,40,000 (Loss).

Showing the working clearly, give the necessary journal entry to record the above change.

Fill up / 1 Marks

4 x 1 = 4

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

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

Give two circumstances in which sacrifice ratio may be applied.

What is meant by change in profit sharing ratio?

Generic 8

2 x 8 = 16

Ram,Raj and Rohan and partners sharing profits and loses in the ratio of 4:3:2 They decide to share the future profits and losses in the ratio 2:3:4 with effect from 1st April ,2014 An extract of their balance sheet as at 31st March,2015 is as under.
Balance Sheet (An extract)
as at 31st March,2015

Liabilities	Amt (Rs)	Assets	Amt (Rs)
Workmen Compensation Reser	45,000

Show the accounting treatment under the following alternative cases.
(i)If there is no other information
(ii)If a claim on account of workmen's compensation is estimated at Rs 22,500
(iii) If a claim on account of workmen's compensation is estimated at Rs 48,500

10.

A,B,C are partners sharing profits and losses in the ratio of 5:3:2. They decide to share future profits and losses equally with effect from 1st April, 2015.The goodwill of the firm has been valued at Rs 90,000. Goodwill is already appearing in the books at Rs 15,000.Show the necessary accounting treatment .
Identify the value being highlighted by making adjustment for goodwill at the time of change in profit sharing ratio.

Generic 6

3 x 6 = 18

11.

Archie,Betty and Veronica are partners sharing profits in the ratio of 3:2:1 With effect from 1st April 2015 they decide to share profits in the ratio of 2:2:1 Their balance sheet as at 31st March,2015

Liabilities		Amt(Rs)	Assets	Amt (Rs)
Creditors		1,00,000	Cash	62,000
Outstanding Expenses		12,000	Debtors	50,000
Capital A/cs			Stock	75,000
Archie	3,75,000		Plant and macheinery	3,25,000
Betty	2,25,000		Land and building	4,00,000
Vernoica	2,00,0000	8,00,000
		9,12,000		9,12,000

For the above purpose ,it was agreed that
(a) Plant and machinery should be written down by Rs 25,000.
(b)Stock is found overvalued by 10% It was decided to reduce its value accordingly
(c)Land and building has to be appreciated by 25%.(d)Creditors amounting to be Rs 5,500 are not likely to claim their amount.
(d)Creditors amounting to Rs 5,500 are not likely to claim their account.
(e) Goodwill at the time of reconstitution, is to be valued at 3 years purchase of average profits of last five years,which were Rs 22,500.
You are required to give effect to the above adjustments.
(i) By opening revaluation account
(ii) By passing a single adjustment entry

12.

Rajeev,Sanjay and Mohit are partners sharing profits and losses in the ratio of 2:3:5 On 1st April,2015,they decide to change their ratio to 3:3:4 as Rajeev contributes more time to the business

13.

Anita,Asha and Amrit are partners sharing profits in the ratio of 3:2:1 respectively .From 1st January,2016,they decided to share profits in the ratio of 1:1:1.The partnership deed provided that in the event of any change in profit sharing ratio,the goodwill should be valued at three years'purchase of the average of five years'
The profits and losses of the preceding five years are

Year	Profit
2011	Rs 1,20,000
2012	Rs 3,00,000
2013	Rs 3,40,000
2014	Rs 3,80,000
2015	Loss Rs 1,40,000

Showing the working clearly,give the necessary journal entry to record the above change.

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Answers Key:

Generic 3

4 x 3 = 12

Debit M and Credit R =Rs 10,800

Goodwill alredy existing in the books is written-off in old ratio.

Accounting Standard -10 states the goodwill is to be recorded in the book's only when some consideration in money or money's worth has been paid for it.

Anita's sacrifice 2/6; Asha's gain and Amrit's gain 1/6 each; Dr. Asha's Capital and Amrit's Capital Rs. 1,00,000 each i.e., RS 6,00,000X1/6; Cr.Anita's Capital Rs.2,00,000, i.e., Rs.6,00,000X2/6.

[Hint: Value of goodwill=Rs.\(10,00,000\div 5\times 3\) =Rs.6,00,000.]

Fill up / 1 Marks

4 x 1 = 4

()
Old profit sharing ratio.

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

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

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

Generic 8

2 x 8 = 16

Date	Particulars	Amt(Dr)	Amt(Cr)
2015
Apr1
(i)	Workmen Compensation Reserve A/c Dr	45,000
	To Ram's capital		20,000
	To Raj's Capital A/c		15,000
	To Rohan's Capital A/c		10,000
	(Being the transfer of surplus workmen compensation reserve to partners capital accounts in their old profit sharing ratio)
(ii)	Wormen Compensation Reserve A/c Dr	45,000
	To Provisions for Workmen Compensation Claim A/c		22,500
	To Ram's Capital A/c		10,000
	To Raj;s Capital A/c		7,500
	To Rohan's Capital A/c		5,000
	(Being the transfer of surplus workmen Compensation reserve to partners capital accounts in their old profit sharing ratio)
(iii)	Workmen Compensation Reserve A/c Dr	45,000
	Revaluation A/c To provision for Workmen Compensation Claim A/c		4,500
	(Being the transfer of loss on revaluation to partner's capital accounts in their old profit sharing ratio)

10.

Sacrificing/(Gaining) share =Old share-New share
   A= \(\frac { 5 }{ 10 } -\frac { 1 }{ 3 } =\frac { 15-10 }{ 30 } \) Sacrifice
   B=\(\frac { 3 }{ 10 } -\frac { 1 }{ 3 } =\frac { 9-10 }{ 30 } \left( \frac { 1 }{ 30 } \right) \) Gain
C=\(\frac { 2 }{ 10 } -\frac { 1 }{ 3 } =\frac { 6-10 }{ 30 } \left( \frac { 4 }{ 30 } \right) \)
Compensation payable by B (Gaining partner ) to A ( Sacrificing partner )
   =90,000X\(\frac { 1 }{ 30 } =Rs3,000\)
Compensation payable by C (Gaining partner) to A (Sacrificing partner)
   =90,000X \(\frac { 4 }{ 30 } =Rs12,000\)
JOURNAL

Date	Particulars	Amt (Dr)	Amt (Cr)
2015
Apr 1	A's Capital A/c (Rs 15,000X5/10) Dr	7,500
	B's Capital A/c(Rs 15,000X3/10) Dr	4,500
	C's Capital A/c (Rs 15,000X2/10) Dr	3,000
	To Goodwill A/c (Being the existing goodwill written-off in old ratio on change in profit sharing ratio)		15,000
	B's Capital A/c (Rs 90,000X1/30) Dr	3,000
	C's capital A/c (Rs 90,000X5/30) Dr	12,000
	To A's Capital A/c(Rs 90,000X5/30) (Being the adjustment made for goodwill on charge in the profit sharing ratio)		15,000

Value being highlighted here is:
Compensation and consideration The value of compensation and consideration being highlighted by giving by giving credit to the sacrificing partners for share sacrificed.

Generic 6

3 x 6 = 18

11.

(i) Profit on revaluation = Rs 73,000
(ii) Betty and Veronica's gaining ratio=2:1 Debit Betty and Vernoica with Rs 9,367 and Rs 4,683 respectively and Credit Archie with Rs14,050.

12.

At that date,goodwill appears in the books at Rs 1,25,000 pass necessary journal entries ,showing adjustment of goodwill ,if goodwill is valued at Rs 2,00,000 Also identify the value communicated by the firm.

13.

Amrit gains and Anita sacrifices 1/6 share, Debit Amrit's capital account and Credit Anita's capital account with Rs 1,00,000.