Question

A B and C are partners sharing profits equal. They decided that in future C will get 1/5 share in profit. On the day of change firm's goodwill is valued at 30000. Give journal entry arising on account of change in profit sharing ratio.
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Answer 1

Given data:

• A, B and C are partners in a firm, sharing profits and losses equally.
• It is decided that C will get 1/5th of the profits in the future.
• Goodwill is valued at Rs 30,000.

Objective: To pas‎s a journal entry on the revaluation.

Answer:

• A's old share = 1/3
• B's old share = 1/3
• C's old share = 1/3

• C's new share = 1/5

Let the total profit be assumed as 1.

Remaining share = 1 - 1/5 = 4/5

Since there is no specific ratio as to how the remaining ratio will be shared, it will be divided equally.

• A's new share = 4/5 ÷ 2 = 4/5 × 1/2 = 4/10
• B's new share = 4/5 ÷ 2 = 4/5 × 1/2 = 4/10
• C's new share [equalizing it] = 1/5 × 2/2 = 2/10

Therefore, the new ratio is 4:4:2 or 2:2:1.

Calculation of sacrifice/gain:

Sacrifice/Gain = Old ratio - New ratio

• A negative difference indicates gain.
• A positive difference indicates sacrifice.

For A:

• Sacrifice/Gain = 1/3 - 2/5 = (5 - 6)/15 = -1/15 [Gain]

For B:

• Sacrifice/Gain = 1/3 - 2/5 = (5 - 6)/15 = -1/15 [Gain]

For C:

• Sacrifice/Gain = 1/3 - 1/5 = (5 - 3)/15 = 2/15 [Sacrifice]

Calculation of goodwill distribution:

For A:

• Goodwill = Rs 30,000 × 1/15 = Rs 2,000

For B:

• Goodwill = Rs 30,000 × 1/15 = Rs 2,000

For C:

• Goodwill = Rs 30,000 × 2/15 = Rs 4,000

Adjustment entry:

Gaining partner(s)' capital A/c ... Dr

• To sacrificing partner(s)' capital A/c

A's capital A/c ... Dr - Rs 2,000

B's capital A/c ... Dr - Rs 2,000

• To C's capital A/c - Rs 4,000

Answer 2

→ Hey Mate,

→ Given Question : -

→ A B and C are partners sharing profits equal. They decided that in future C will get 1/5 share in profit. On the day of change firm's goodwill is valued at 30000. Give journal entry arising on account of change in profit sharing ratio.

→ Solution:-

→ old ratio = 1: 1 : 1  or  1 / 3 , 1/3 , 1/3

→  c's New ratio  = 1/5

→ Let total profit be = 1

→ Remaining profit =  1 / 1 - 1 / 5   = 5 - 1 / 5  = 4 / 5

→ A's new  share  = 1 / 2 of 4 / 5 = 2 / 5

→ B's new share = 1 / 2 of  4 / 5 = 2 / 5

→ New Ratio = 2 / 5 : 2 / 5 : 1 / 5

→ or ,

→  2 : 2 : 1

→ sacrifice or gain  = old ratio - new ratio

→ A  = 1 / 3   - 2 /5    = 5 - 6 / 15 = -1 / 15  ( Gain )

→ B = 1 / 3  - 2 / 5 = 5 - 6 / 15 = - 1/ 15 ( Gain)

→ c = 1 / 3 - 1 / 5 =  2 / 15

→  A has to be debited = Rupees 30000 × 1 / 15  =

→ Rupees 2,000

→  B has to be debited = Rupees 30000 × 1 / 15 =

→  Rupees 2,000

→ c has to be credited = Rupees  30000 × 2 / 15 =

→ Rupees  4,000  

→ Thank you,

   

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