Bh were partners in a firm carrying on a tiffin service in Hyderabad Bhavya noticed that a lot of food is left at the end of the day. To avoid wastage she suggested that it be disbursed to the needy, Niman wanted that be mixed with the food being served the next day. Naman then give a proposal that if his share of profit is increased than he will not mind free distribution of left over food. Bhavya happily agreed. So, they decided to change their profit sharing ratio to 1:2 with immediate effect. On that date re valuation of assets and reassessment of liability was carried out that resulted Into a gain of" 18,000, On that date the goodwill of the firm was valued at * 1,20000. Pass necessary journal entries for the above in the book of the firm.
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Answer:
whatever is the circumstances, it doesn't matter.. What matter is, there is change in profit sharing ratio.. so first you need to calculate Sacrificing ratio as well as gaining ratio.
Whenever there are changes in Profit sharing ratio there are requirement of adjustment regarding Revaluation of assets and Liabilities, adjustment for goodwill.
Such adjustment is made on the basis of Sacrificing ratio and gaining ratio.. Partner whose share has been increased as a result of Change of Profit Sharing Ratio is known as Gaining Partner and partner whose share has been decreased as a result of change in profit sharing ratio is known as sacrificing partner.
Journal entry will be :
Gaining Partner's Capital A/C Dr
To Sacrificing Partner's Capital A/C
Amount : in the ratio of sacrifice or gain as the case may be..