How will you deal with a change in the profit sharing ratio among existing partners? Take imaginary figures to illustrate your answer?
Answers
We will deal with a change in the profit sharing ratio among existing partners by the following way:
Sometimes the partners decide to change the existing profit sharing ratio . The change will result in either increase or decrease or not change in share of individual partners in such case profit or loss up to the date of change is credited or debited into the partners capital accounts in the old profit sharing ratio. If there is any undistributed profit in the form of general reserve etc. is also credited to the partners capital account in the old profit sharing ratio.
Sometimes while changing the profit sharing ratio, they must also decide the revaluation of assets and liabilities. In such cases , if there is any profit or loss arising on revaluation is also credited or debited to partner's capital accounts in their old profit sharing ratio.
Example :
Annu , Kajal and Bindu are partners in a firm sharing profits in the ratio 2 : 2: 1 . They decide to share profits in the future 3 : 2 : 2. On that date, the Profit and Loss account has credit balance of ₹ 60,000. It was decided to pass adjustment entry reflecting the change in profit sharing ratio.
Solution of the examples in the attachment below.
Hope this answer will help you….
Here are some more questions from this chapter :
If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?
https://brainly.in/question/17097374
Harshad and Dhiman are in partnership since April 01, 2016. No Partnership agreement was made. They contributed Rs 4,00,000 and 1,00,000 respectively as capital. In addition, Harshad advanced an amount of Rs 1,00,000 to the firm, on October 01, 2016. Due to long illness, Harshad could not participate in business activities from August 1, to September 30, 2017. The profits for the year ended March 31, 2017 amounted to Rs 1,80,000. Dispute has arisen between Harshad and Dhiman. Harshad Claims: (i) He should be given interest @ 10% per annum on capital and loan; (ii) Profit should be distributed in proportion of capital; Dhiman Claims: (i) Profits should be distributed equally; (ii) He should be allowed Rs 2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad; (iii) Interest on Capital and loan should be allowed @ 6% p.a. You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.
https://brainly.in/question/17097637
