Chapter 3
-Change in Profit sharing Ratio of a Partner
IMPORTANT POINTS
|
Gaining Ratio= New
ratio -Old Ratio
|
|
Gaining Partners Capital/Current A/c
|
|
Dr. (In GR)
|
|
To Sacrificing Partners Capital/ Current A/c (In SR)
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1. Calculation Sacrificing Ratio and Gaining
Ratio
Sacrificing Ratio = Old ratio- New ratio
Gaining Ratio = New Ratio - Old ratio
Ø
Accounting
Treatment of Goodwill:
Gaining partner's capital/current A/c ....Dr. (In G/R) To Sacrificing Partner's capital/current A/c (In S/R)
Ø Treatment of existing goodwill:
Old partners capital/current A/c ......Dr. (In Old Ratio)
To Goodwill A/c
2. Revaluation of Assets and Reassessment of Liabilities:
When revised value is to
be recorded in the books
of
accounts:
Treatment will be done through
Revaluation Account.
Crediting All Gains:
Increase in
the value of assets Unrecorded asset realized
Decrease in the value
of liabilities
Debiting All Losses:
Decrease in the value
of assets Unrecorded
liability raised
Increase in the value of liabilities
-When revised value is not to
be recorded in the
books
of
accounts:
Single entry will be passed
Single entry will be passed
|
Gaining Partners Capital/Current A/c
|
|
Dr. (In GR)
|
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To Sacrificing Partners Capital/ Current A/c (In SR)
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If profit:
Gaining partner's capital/current A/c ....Dr. (In G/R) To Sacrificing Partner's capital/current A/c (In S/R)
Sacrificing partner's capital/current A/c .....Dr. (SR ratio)
To Gaining partner's capital/current A/c (GR ratio)
To Gaining partner's capital/current A/c (GR ratio)
3. Treatment of Accumulated profits
/losses and Reserves:
Ø If reserves and accumulated profits are not to be shown in the balance sheet of reconstituted firm, treatment will be:
Reserves/Accumulated Profit .....Dr.
TO all Partner's capital A/c ( In old Ratio)
|
Reserves/Accumulated
Profits Dr.
To All Partners
Capital A/C ( In OR)
|
Ø
If reserves and accumulated profits
are to be appeared in the balance
sheet of reconstituted firm with same
figures as per partnership deed, then treatment will be instead
of above an adjusting entry
is passed among
the partners in sacrificing ratio:
|
Gaining partner capital A/c Dr. (In GR) To Sacrificing partner capital A/C
(In SR)
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- On liabilities side of the balance sheet always mention the liability against reserve. Then distribute balance of free reserve if any among the partners.
- In case liability exceeds the reserve then open revaluation account and debit partners capital account.
Note:
Employee Provident Fund is a statutory liability under Employees Provident fund Act therefore
it cannot be distributed among partners.
Workmen Compensation Reserve ,
Suppose A and B are
Partners
sharing
profits
in the ratio
of
3:2.
On
1st April
2018 they decide to share
future profits equally.
Balance
sheet
Liabilities
|
Assets
|
||
Workmen Compensation Reserve
|
10,000
|
Case 1: Claim for workmen compensation 4,000
|
·
Keep 4,000 aside
to
be
shown in the NEW Balance sheet liability side
|
Workmen comp. reserve A/c Dr 10,000
To Claim for comp. A/c 4,000
|
·
Distribute
remaining 6,000 among old partners in
Old Ratio.
|
To A’s
Capital A/c 3600
To B’s Capital A/c 2400
|
|
Case 2: Claim for workmen compensation
is 10,000
|
·
Keep 10,000 aside
to be shown in the
NEW Balance sheet liability side
·
Nothing is left
to
distribute
among old partners in Old
Ratio.
|
Workmen comp.Reserve A/c ... Dr 10,000
To Claim for comp. A/c 10,000
|
Case 3: There is
no other information
|
·
No need
to keep anything aside
· Distribute
the whole amount (10,000) among old
partners in
Old Ratio.
|
Workmen comp. Reserve A/c Dr 10,000
To A’s Capital A/c 6,000
To B’s Capital 4,000
|
Case 4: Claim for workmen compensation
is 12,000
|
·
Keep 12,000 aside
to be shown in the
NEW Balance sheet liability side
·
Nothing is left
to
distribute among old partners in
Old Ratio.
·
Old partners have to bear loss of 2,000 in OR
|
Workmen comp. Reserve A/c Dr 10,000
Revaluation A/c Dr
2,000
To Claim for
comp. A/c 12,000
A’s Capital A/c Dr 1,200
B’s Capital A/C Dr
800
To Revaluation A/c 2,000
|
Investment Fluctuation Fund :
Suppose A and
B are Partners sharing profits
in
the
ratio
of
2:3. On 1st April 2018 they decide to share future
profit in the ratio of 2:1 .
Balance
sheet
Liabilities
|
Assets
|
||
Investment Fluctuation Fund
|
5,000
|
Investment
|
1,00,000
|
Case 1: Market value of Investment
is 97,000
|
·
There is a loss of
3,000 which will be
used from IFF
· Remaining fund 2,000 is distributed among old partners in Old Ratio.
|
Investment Fluc. Fund A/c Dr. 5,000
To Investment A/c 3,000
To A’s
Capital A/c 800
To B’s Capital A/c 1,200
|
Case 2: Market value of Investment
is 95,000
|
·
There is a loss of
5,000 which will be
used from IFF
·
Nothing is left to
distribute
among old partners in
Old Ratio.
|
Investment Fluc. Fund A/c Dr. 5,000
To
Investment A/c 5,000
|
Case 3: Market value of Investment
is 92,000
|
·
There is a loss of 8,000 out of 5,000 will be used from IFF and
3,000 debited to
revaluation A/c
·
Nothing is left to distribute
among old partners in
Old Ratio.
·
Loss of 3,000
will
be born
by Old partners in OR
|
Investment Fluc. Fund A/c Dr.
5,000
Revaluation A/c Dr 3,000
To Investment A/c 8 ,000
A’s Capital A/c Dr 1,200
B’s Capital A/c Dr 1, 800
To Revaluation A/c 3,000
|
Case 4: Market value of Investment
is 1,10,000
|
· There is a profit of
10,000 so entire amount of IFF will be
distributed among old partners in Old Ratio.
·
Profit will be
credited to
revaluation A/c .
·
Profit
on revaluation will be distributed among Old partners in OR
|
Investment Fluc. Fund
A/c Dr. 5,000
To A’s Capital A/c 2,000
To B’s Capital A/C 3,000
Investment A/c Dr 10,000
To
Revaluation A/c 10,000
|
Revaluation A/c Dr 10,000
To A’s Capital A/c 4,000
To B’s Capital A/c 6,000
|
||
Case5 : If no
other information is given
|
· There is no profit no loss .
· Distribute the IFF
among old partners in Old Ratio
|
Investment Fluc, Fund
A/c Dr. 5,000
To A’s Capital A/c 2,000
To B’s Capital A/c 3,000
|
Ø Accumulated Losses: Profit loss A/c( Dr. balance ) Deferred Revenue
Expenditure, Advertisement
suspense a/c (Dr.)
Ø Treatment–
They
are required to be written
off on reconstitution by crediting them and debiting old Partners capital account in old profit
sharing ratio.
·
If it is agreed that accumulated losses
to be remained appearing in the books of
reconstituted firm then instead of above treatment an adjusting entry among
the partners is to be done.
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