Change in Ratio

 

                                   (Change in Profit Sharing Ratio of Existing Partners)

                                                   Topic : Change in Ratio

1. What is meant by Reconstitution of a Firm? [1]

2. What is meant by Change in Profit Sharing Ratio? [1]

3. What are the main occasions on which reconstitution of partnership firm can take place? [1

4. What adjustments are required at the time of change in profit sharing ratio? [1]

5. Why are “Reserves and Surplus” distributed at the time of reconstitution of the firm? [1]

6. Why is it necessary to revalue the assets and liabilities of a firm on its reconstitution?

Explain briefly.                                                                                                                   [1]

7. Ram, Shyam and Mohan were partners sharing profits in the equal ratio. They have decided to share the profits in the ratio of 5 : 3 : 2 with retrospective effect. Calculate the sacrificing or Gain of the partners.              [3]

8. Gupta , Verma and Sharma were partner’s sharing profits in the ratio of 4 : 3 : 2. The partners decided to share profits and losses in the ratio of 2 : 2 : 1. Calculate each partner’s Gain or Sacrifice due to change in ratio.                                                    [3]

9. A and B were partners sharing profits in the ratio of 3 : 2. They have decided to share profits in the ratio of 5 : 3. Calculate sacrifice or Gain ratio of the partner’s due to change in ratio.      (3)

10. A, B and C are partners sharing profits in the ratio of 4 : 3 : 2. They have decided to share profits equally. Calculate Sacrifice or Gain of the partner.                  (3)

ANSWERS

1. Partnership is an agreement between the members of a firm for sharing the profits of the business

carried on by all or any of them acting for all. Any change in the relationship amounts to

reconstitution of the partnership firm. New partnership agreement comes into being and old

agreement ends.

2. Change in Profit Sharing Ratio in existing partners shows that there is increase in share of profit

of one or more partners and decrease in share of profit of one or more partners.

3. (i) Change in profit sharing ratio of existing partners (ii) When a new partner is admitted

(iii) When a partner get retired (iv) When a partner dies

4. (i) Ratios i.e. Old/New/Sacrifice/Gain (ii) Adjustment of goodwill (iii) Revaluation of assets

and reassessment of liabilities (iv) Adjustment of accumulated profits/reserves/losses.

5. In Actual, Reserves and surplus are set apart out of past profits. If they are not utilised then they

will be distributed among the old partners in their old profit sharing ratio becuase these reserves

and surplus belong to old partners only.

6. The main purpose is to find out the increase or decrease in the assets and liabilities due to change

in profit sharing ratio. Profit or loss on revaluation is shared by the old partners in their old ratio.

7. Old Ratio 1 : 1 : 1

New Ratio 5 : 3 : 2

Sacrifice or Gain of the partners :

Ram = old – New Ratio 1/3 – 5/10 = [ 5/30 Gain]

Shyam = old – New Ratio 1/3 – 3/10 = 1/30 Sacrifice

Mohan = old – New Ratio 1/3 – 2/10 = 4/30 Sacrifice

8. Old Ratio 4 : 3 : 2

New Ratio 2 : 2 : 1

Scrifice or Gain of the partners:

Gupta = old – New Ratio 4/9 – 2/5 = 2/45 Sacrifice

Verma = old – New Ratio 3/9 – 2/5 = [ 3/45 Gain]

Sharma = old – New Ratio 2/9 – 1/5 = 1/45 Sacrifice

9. A Gain 1/40 ; B Sacrifice 1/40

10. A’s Sacrifice 3/27 ; B No sacrifice/No Gain ; C Gain 3/27