Treatment of Reserves/Profits (Accumulated)
(Change in Profit Sharing Ratio of Existing Partners)
Topic : Treatment of Reserves/Profits (Accumulated)
1. Why is it necessary to distribute Accumulated Reserves, Profits & Losses at the time of change in profit sharing ratio?[1]
2. State the ratio in which the partners share all the accumulated profits, reserves, losses and fictitious assets in case of change in profit sharing ratio. [1]
3. State any two occasions on which reconstitution of partnership firm can take place. [1]
4. A, B and C are partners in a firm sharing profits in the ratio of 3:3:2. They decided to share profits equally w.e.f. April 1, 2014. On that date, the profit and loss account showed the credit balance of Rs.24,000. Instead of closing the Profit and Loss Account, it was decided to record an adjustment entry reflecting the change in the profit sharing ratio. Record necessary journal entry to effect to the same. [3]
5. Vinod, Sunita and Simran are partners in a firm sharing profits in the ratio of 3:2:1. They decided to share profits equally w.e.f April 1, 2014. On that date the profit and loss account showed the credit balance of Rs.60,000 and a balance of Rs.30,000 in general reserve. Instead of closing profit and loss account, it was decided to record an adjustment entry reflecting the change in the profit sharing ratio. Give necessary journal entry to give effect to the same.[3]
6. Vinod and Kumar are partners in a firm sharing profits in the ratio of 3:2. They decided to share future profits equally. On the date of change in profit sharing ratio the profit and loss account showed a debit balance of Rs.20,000. Give necessary entry to give affect to the same.[3]
7. EK, FK and GK are partners sharing profits in the ratio of 7:6:5. Their fixed capitals are Rs.1,40,000; Rs.80,000 and Rs.1,60,000 respectively. It is now decided that the total capital of the firm should be Rs.7,20,000 and should be in the profit sharing ratio of the partners. Calculate the amount of capital to be contributed by the individual partners and record necessary journal entry for the same. [3]
8. Vinod and Kumar are partners in a firm sharing profits in the ratio of 5:3. On March 1,2013, their Balance Sheet showed a general reserve of Rs.40,000. On that date they decided to admit Mohan as a new partner. The new profit sharing ratio between Vinod, [6]
Kumar and Mohan will be 5:3:2. Record the necessary entry when
(i) They want to transfer the general reserve in their capital accounts
(ii) They don’t want to transfer general reserve in their capital account and prefer to record an adjustment entry for the same.
Accountancy Challenge
Challenge : 1Ram, Shyam and Mohan were sharing profits and losses in the ratio of 5:3:2. They decided to share future profits and losses in the ratio of 2:3:5 with effect from 1.4.2013. They decided to record the effect of the following, without effecting their book values:
(i) Profit and Loss Account Rs.48,000
(ii) Advertisement Suspense A/c Rs.24,000
Pass necessary adjusting entry.
X, Y and Z were partners in a firm sharing profits in the ratio of 3:2:1. On 1st January, 2015, they
decided to share the profits equally. Goodwill should be valued at 3 years purchase of last 5 years
profits. The profits for the last 5 years were:
2010 Rs.1,20,000
2011 Rs.3,00,000
2012 Rs.3,40,000
2013 Rs.3,80,000 Loss
2014 Rs.1,40,000
Pass the necessary adjustment entry.
ANSWERS
1. At the time of change in profit sharing ratio, it is necessary to distribute all accumulated
profits/losses and reserves so that they are adjusted in appropriate ratio with negative or positive
effect.
2. Old Profit sharing ratio
3. (i) When there is change in existing profit sharing ratio (ii) At the time of admission/Retirement
or death of a partner.
4. C’s Capital A/c Dr.2,000; A’s Capital A/c Cr.1,000; B’s Capital A/c Cr.1,000
5. (i) P/L A/c Dr. 60,000; Vinod Cr.30,000; Sunita Cr.20,000; Simran Cr.10,000
(ii) General Reserve Dr.30,000; Vinod Cr.15,000; Sunita Cr.10,000; Simran Cr.5,000
6. Vinod Dr.12,000; Kumar Dr.8,000 and P/L A/c Cr.20,000
7. EK will contribute Rs.1,40,000; FK will contribute Rs.1,60,000; GK will contribute Rs.40,000;
Bank A/c Dr.3,40,000; EK Cr.1,40,000; FK Cr.1,60,000; GK Cr.40,000.
8. (i) General reserve A/c Dr.40,000; Vinod Cr.25,000; Kumar Cr.15,000
(ii) Mohan Dr.8,000; Vinod Cr.5,000; Kumar Cr.3,000
Challenge-1 : Mohan Dr.7,200; Ram Cr.7,200
Challenge-2 : Z’s Capital A/c Dr.1,00,000; X’s Capital A/c Cr.1,00,000
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