PROF.

HARPAL SINGH 9815625813 CHANGE IN PSR

HARPAL COMMERCE TUTORIALS

H. NO. B-1-810/18Q, UPKAR NAGAR, CIVIL LINES, NEAR PAHWA
DHARAMSHALA

XII ASSIGNMENT: CHANGE IN

PROFIT SHARING RATIO
TREATMENT OF GOODWILL
Q1. A, B & C are partners in a firm sharing profits & losses in ratio of 3:2:1. In future, they decided to share profits in the
ratio of 6:5:2. For this purpose, the goodwill of the firm was valued at ₹78,000. Pass necessary journal entry for the
treatment of goodwill due to change in profit sharing ratio. Also show your workings clearly.
[ans: dr B ₹4000 cr A ₹3000 C ₹1000]
Q2. P, Q and R are partners sharing profits equally. They decided that in future R will get 1/5th share in profits and
remaining profit will be shared by P and Q equally. On the day of change, firm's goodwill is valued at ₹ 30,000. Give the
journal entry arising on account of change in profit-sharing ratio. [ans: dr P ₹2000 Q₹2000 cr R ₹4000]
Q3. X and Y were partners sharing profits and losses in the ratio of 3:1. They decided that with effect from 1st April 2016,
they would share profits and losses in the ratio of 5:3.The partnership deed provides that in the event of any change in
profit sharing ratio, the goodwill should be valued at the total of two year's profits preceding the date the decision
became effective. The profits for 2013-14, 2014-15, 2015-16 were ₹ 60,000, ₹ 70,000 and ₹ 90,000 respectively.
Pass the necessary journal entry to give effect to the above arrangement. [ans: dr X ₹20,000 cr Y ₹20,000]
Q4. A, B & C are partners sharing profits & losses equally. They decided to share future profits & losses in the ratio of
2:2:1. Goodwill of the firm is valued at ₹60,000. Show journal entries under each of the following alternative cases –
(i) When no goodwill appears in the books.
(ii) When goodwill appears in the books at ₹30,000. [ans: dr A&B ₹12,000 cr B ₹24,000 (ii) dr A,B,C ₹10,000]
Q5. A, B & C are partners sharing profits & losses in the ratio of 3:2:1. With effect from April 1, 2015, it was decided to
change the profits sharing ratio to 4:3:2. Goodwill is to be valued at 2 years’ purchase of average profits of 3 years’ profit.
The profits were -₹95,000, ₹85,000 & ₹90,000. Pass necessary journal entry for goodwill without opening goodwill
account assuming that the firm adopted fixed capital method. [ans Dr C ₹5000 Cr A ₹5000]
Q6. X,Y and Z are partners sharing profits and losses in the ratio 5:3:2, decided to share future profit and losses equally
with effect from 1st April,2020. On that date, the goodwill appeared in the books at ₹12,000. But it was revalued at
₹30,000. Pass Journal entries if goodwill will not appear in the books of account. [ans: Dr Y ₹1000 Z ₹4000 Cr X ₹5000]
Q7. A and B are partners sharing profits in the ratio of 2:1. They decided that with effect from 1st April,2019, they would
share profits in the ratio of 3:2. But, this decision was taken after the profit for the year ended 31st March,2020 of
₹90,000 was distributed in the old ratio. Firm’s goodwill was valued on the basic aggregate of two years preceding the
date decision became effective. Profits for the year ended 31st March,2018 and 2019 were ₹60,000 and ₹75,000
respectively. It was decided that goodwill Account will not be opened in the books of the firm and necessary adjustment
be made through Capital Accounts which on 31st March,2020 stood at ₹1,50,000 for A and ₹90,000 for B.
Pass necessary journal entries and prepare Partner’s Capital Accounts. [ans: Dr B ₹11000 Cr A ₹11000]
Q8. A, B and C are partners sharing profits and loss in the ratio of 2:5:5. From 1st January, 2015, they decided to share
profit and loss in the ratio 3:5:7. You are required to fill up the following journal entry.

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PROF. HARPAL SINGH 9815625813 CHANGE IN PSR

DATE PARTICULARS L.F. Dr ₹ Cr ₹

2015 A’s capital A/c Dr __________
Jan 1 C’s capital A/c Dr 90,000
To B’s capital A/c __________
(adjustment for goodwill due to change in profit sharing ratio)
Q9. Reena, Richa and Rhea are partners sharing profits and losses in the ratio1:2:3. They decided to change their profit
sharing ratio. For this goodwill entry made in the books is:
DATE PARTICULARS L.F. Dr ₹ Cr ₹
Reena’s capital A/c Dr 90,000
To Richa’s capital A/c 60,000
To Rhea’s capital A/c 15,000
(adjustment for goodwill due to change in profit sharing ratio)
The value of Goodwill is ₹3,60,000. What is the new profit sharing ratio?

TREATMENT OF RESERVES, ACCUMULATED PROFITS AND LOSSES

Q1. X and Y are partners in a firm sharing profit and losses in the ratio of 3:2. With effect from 1st April 2020 they decided
to share future profit equally. On the date of change in the profit-sharing ratio, the profit and loss account showed a credit
balance of ₹1,50,000. Record the necessary Journal entry for the distribution of the balance in the Profit & Loss Account
immediately before the change in the profit-sharing ratio. [ans Dr P&L A/c Dr ₹1,50,000 Cr X ₹90,000 Y ₹60,000]
Q2. A and B are partners in a firm sharing profits and losses in the ratio of 4:1. They decided to share future profit in the
ratio of 3:2 w.e.f. 1st April,2020. On the day, Profit & Loss Account showed a debit balance of ₹1,00,000. Pass Journal
entry to give effect to above. [ans Dr A ₹80,000 B ₹20,000 Cr P&L A/c ₹1,00,000]
Q3. A,B and C are presently sharing profit and losses in the ratio of 5:3:2 decide to share future profit and losses in the
ratio of 2:3:5. Give the journal entry to distribute ‘Workmen compensation Reserve’ of ₹1,20,000 at change in profit-
sharing ratio.
i. No other information is given.
ii. There is no claim against it.
iii. There is a claim of ₹8,000 against it.
iv. When there is a claim of ₹1,50,000 against it. [ans: (i) and (ii) Dr WCR ₹1,20,000 Cr A ₹60,000 B
₹36,000 C ₹24,000 (iii) Dr WCR ₹1,20,000 Cr A ₹56,000 B ₹33,600 C ₹22,400]
Q4. Nitin, Tarun and Amar are partners sharing profits equally and decide to share profits in the ratio of 2:2:1 w.e.f. 1st
April, 2020. The extract of their balance sheet as at 31st March, 2020 is as follows:
Liabilities ₹ Assets ₹
Investment Fluctuation reserve 60,000 Investment (At cost) 4,00,000
Pass the journal entries in each of the following situation
i. When its Market Value is not given;
ii. When its Market Value is ₹4,24,000;
iii. When its Market Value is ₹3,70,000;
iv. When its Market Value is ₹3,10,000. [ans (i) and (ii) Dr IFR ₹60,000 Cr N, T, A ₹20,000 (iii) Dr IFR ₹30,000 Cr N,
T, A ₹10,000 (iv) Dr revaluation ₹30,000 Cr investment ₹30,000]
Q5. X and Y are partners sharing profits in the ratio of 2:1. On 31st March,2020 , their balance sheet showed general
reserve of Rs 60,000. It was decided that in future they will share profits and losses in the ratio of 3:2. Pass necessary
journal entry in the each of following alternative cases:
(i) When journal reserve is not to be shown in the new balance sheet.
(ii) When journal reserve is to be shown in the new balance sheet. [ans (i) Dr general reserve ₹60,000 Cr X
₹40,000 Y ₹20,000 (ii) Dr X ₹ 4,000 Cr Y ₹4,000]
Q6. X, Yand Z 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 w.e.f 1st April,2020. They also decided to record the effect of the following accumulated profits, losses and reserves
without affecting their book values by passing a single entry:
Book values (₹)
General reserve 6,000
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PROF. HARPAL SINGH 9815625813 CHANGE IN PSR
Profit and Loss A/c credit 24,000
Advertisement suspense A/c 12,000
Pass an adjustment entry. [ans: Dr Z ₹5400 Cr X ₹5400]
Q7. Ina, Mina & Dika are partners sharing profits & losses in the ratio of 2:2:1. From April 1, 2015, they decided to share
profits & losses equally. On that date, there was a debit balance of ₹60,000 in Profit & Loss account & a balance of
₹30,000 in General Reserve. The partners don’t want to show the balance of Profit & Loss account and general reserve in
the new Balance Sheet. Record the necessary journal entry/entries in the books of the firm. [Dr I & M ₹2,000 Cr D ₹4,000]
Q8. X, Y & Z are partners sharing profits & losses in the ratio of 5:3:2. With effect from April 1, 201, they decided to share
profits & losses in the ratio of 2:2:1. On that date, their balance sheet showed the following balances –
Profit & Loss (Dr.) -₹25,000;
General Reserve- ₹50,000;
Workmen Compensation Reserve-₹5,000;
Advertisement Suspense A/c-₹10,000.
Pass necessary journal entries. [ans Dr Y ₹2000 Cr X₹2000]
Q9. X, Y & Z were sharing profits & losses in the ratio of 5:3:2. They decided to share future profits & losses in the ratio of
2:3:5 with effect from April 1, 2007. They decided to record the effect of the following, without effecting their book
values-
Profit & Loss A/c-₹ 24,000;
Advertisement Suspense A/c– ₹12,000.
Pass the necessary adjusting entry. [ans Dr Z ₹3600 Cr X ₹3600]
Q10. Amit and Sumit were partners in a firm sharing profits in 3:2. Their balance sheet as on 31-03-2022 is as follows:
LIABILITIES ₹ ASSETS ₹
Capital accounts – Goodwill 1,20,000
Amit 1,50,000 Sundry assets 2,80,000
Sumit 1,00,000 2,50,000
Creditors 80,000
Profit and loss account 70,000
4,00,000 4,00,000
On 1-4-2022, they decided to share profits and losses equally. They also agreed to value goodwill of the firm at ₹1,00,000
but they did not want to alter the book value of goodwill and profits. Pass a single journal entry to record the change.
[ans Dr A ₹ 3,333 Cr S ₹3,333]
Q11. A, B & C are partners profits and losses in the ratio of 2:3:4. They decided to share future profits and losses in the
ratio of 4:3:2. They also decided to record the effect of the following without affecting their book values –
General Reserve ₹40,000;
Profit & Loss Account-₹20,000;
Advertisement Suspense Account – ₹15,000
Contingency Reserve – ₹20,000
Workmen Compensation Reserve – ₹30,000 (claim against it amounted to ₹12,000)
You are required to give the necessary single journal entry. [ans Dr A ₹18,444 Cr C ₹18,444]

REVALUATION ACCOUNT AND NET EFFECT OF REVALUATION

Q1. A, B and C are partners in a firm, sharing profits in the ratio 6:5:4. They changed their profit sharing ratio to 3:1:2. Pass
the journal entries to give the effect of the following:
(a) Goodwill of the firm was valued at ₹1,20,000.
(b) The assets and liabilities must revalued as follows:
Book value (₹) Revalued (₹)
Building 80,000 1,10,000
Debtors 75,000 60,000
Machinery 50,000 15,000
Creditors 1,00,000 80,000 [ans no loss or profit on revaluation]
Q2. X, Y and Z are partners in a firm sharing profit and losses in the ratio of 3:3:2. Their Balance Sheet as on 31st March,
2008, was as follows:

LIABILITIES ₹ ASSETS ₹

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PROF. HARPAL SINGH 9815625813 CHANGE IN PSR
Creditors 24,000 Cash at bank 27,000
General reserve 36,000 Sundry debtors 50,000
Capital accounts Stock 1,20,000
X 2,00,000 Machinery 1,59,000
Y 2,00,000 Building 2,00,000
Z 1,00,000 5,00,000 Advertisement expenditure 4,000
5,60,000 5,60,000
Partner decided that with effect from April 1, 2008, they would share profit and losses in the ratio 4:3:2. It was agreed
that:
(i) Stock is to be valued at ₹1,10,000.
(ii) Machinery is to be depreciated by 10% & Building to be appreciated by 20%.
(iii) A provision for doubtful debts is to be made on debtors @ 5%.
(iv) A liabilities for ₹3,000 included in sundry creditors is not likely to rise.
Partners agreed that revised values of assets and liabilities are to be recorded in the books. They do not want to distribute
the General Reserve.
Give necessary journal entries to be made in the books of the firm on account of changing profit sharing ratio.
[ans profit on revaluation ₹14,600]
Q3. Aman, Chaman and Daman are partners sharing profits and losses in the ratio of 5:4:1. Their Balance Sheet as at 31st
March, 2017 was as follows:
LIABILITIES ₹ ASSETS ₹
Sundry creditors 1,10,000 Cash at bank 2,10,000
Salaries payable 30,000 Sundry debtors 1,00,000
Outstanding expenses 10,000 Less: provision (10,000) 90,000
General reserve 40,000 Stock 50,000
Capital accounts- Furniture 40,000
Aman 3,00,000 Computers 2,00,000
Chaman 1,50,000 Car 2,00,000
Daman 1,50,000 6,00,000
7,90,000 7,90,000
Profit sharing ratio w.e.f. 1st April,2017 was decided to be equal. It was agreed among the partners to carry out following
adjustments:
(a) Stock to be reduced to ₹40,000.
(b) Provision for doubtful debts to be written back, since all debtors are good.
(c) Computers to be reduced by ₹20,000
(d) Out of salaries payable, ₹10,000 was not payable as the employee left without notice.
(e) Outstanding expenses were not payable anymore.
(f) An unrecorded assets (Motor Cycle) valued at ₹10,000 to be accounted.
(g) Goodwill of the firm was valued at ₹50,000.
Pass necessary Journal Entries and Prepare Revaluation account. [ans profit on revaluation ₹10,000]

Q4. Amit & Bobby are partners in a firm sharing profits & losses in the ratio of 3:2. Their Balance Sheet as at December 31,
2014 was –
LIABILITIES ₹ ASSETS ₹
Sundry creditors 30,000 Building 70,000
Capital accounts – Furniture 50,000
Amit 90,000 Debtors 50,000
Bobby 60,000 1,50,000 Cash in hand 10,000
1,80,000 1,80,000
From January 1, 2015, the partners decided to share profits & losses equally. For this purpose, it was agreed that
(a) Building is to be valued at ₹1,10,000.
(b) Current Value of Furniture is to be taken at ₹65,000; &
(c) A provision for doubtful debts @ 10% is to be created on Debtors
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PROF. HARPAL SINGH 9815625813 CHANGE IN PSR
Partners agreed that revised values of assets & liabilities are to be recorded in the books. You are required to pass the
necessary journal entries & also prepare Revaluation Account. [ans profit on revaluation ₹50,000]
Q5. A & B are partners in a firm sharing profits & losses in the ratio of 2:3. They decided to share profits in the ratio of 1:1
from April 1, 2015. Their Balance Sheet as at March 31, 2015 was as under –
LIABILITIES ₹ ASSETS ₹
Creditors 80,000 Building 60,000
Bills payable 30,000 Furniture 5,000
Profit and loss account 25,000 Machinery 1,00,000
General reserve 5,000 Debtors 40,000
Capital accounts – Bills receivables 10,000
A 60,000 Cash at bank 25,000
B 40,000 1,00,000
2,40,000 2,40,000
It was agreed that on the above date –
(a) The goodwill of the firm should be valued at ₹60,000.
(b) The value of the building be appreciated by 10%.
(c) Furniture to be increased to ₹15,000.
(d) Machinery be reduced by 5%.
(e) A provision for doubtful debts is to be made on debtors @ 5%.
(f) A liability for ₹5,000 included in sundry creditors is not likely to rise.
(g) A provision made for outstanding salaries amounting to ₹2,000.
Partners agreed that revised value of assets & liabilities are to be recorded in the books. You are required to record the
necessary journal entries & also prepare Revaluation Account. [ans profit on revaluation ₹2,000]

Q6. Parth, Raman and Zaisha are partners in a firm manufacturing furniture. They have been sharing profits and losses in
the ratio of 5:3:2. From 1st April, 2017 they decided to share future profits & losses in the ratio of 2:5:3. Their Balance
Sheet showed a Balance of ₹12,000 in Workmen’s Compensation Reserve and ₹6,000 in Investment Fluctuation Reserve. It
was agreed that-
(1) Patents (book value of ₹5,000) was found value less.
(2) The Stock (book value of ₹40,000) was to be depreciated by 8%.
(3) Building (book value ₹4,50,000) was undervalued by 10%.
(4) Creditors amounting to ₹900 were not likely to be claimed.
(5) Claim on account of Workmen’s Compensation amounted to ₹20,000.
(6) Investments (book value ₹38,000) were revalued at ₹40,000.
Pass necessary Journal entries for the above. [ans profit on revaluation ₹34,700]
Q7. The following is the Balance Sheet of a firm as at 31st March, 2016:
LIABILITIES ₹ ASSETS ₹
Capital accounts – Building 6,50,000
A 4,00,000 Plant & machinery 5,00,000
B 4,00,000 Stock 3,00,000
C 3,00,000 Debtors 2,40,000
D 3,00,000 14,00,000 Bills receivables 10,000
Reserves 2,40,000 Cash at bank 20,000
Creditors 80,000
17,20,000 17,20,000
On 1st April, 2016 the assets and liabilities were revalued as under:
₹
Building 8,00,000
Plant and machinery 3,20,000
Stock 2,60,000
Creditors 84,000
A provision of 5% was required on debtors. Goodwill of the firm is valued at ₹1,70,000. Partners agreed that from 1st
April, 2016 they will share profits in the ratio of 4:3:2:1 instead of their former ratio of 5:4:2:1. They do not want to record
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PROF. HARPAL SINGH 9815625813 CHANGE IN PSR
the revised values of assets and liabilities in the books. They also do not want to disturb the reserves. Pass a single journal
entry to give effect to the above. [ans Dr A ₹100 B ₹200 Cr C ₹200 D ₹100]

PREPARATION OF REVALUATION A/C, PARTNERS’ CAPITAL A/C AND BALANCE SHEET

Q1. Amit & Bobby are partners in a firm sharing profits & losses in the ratio of 3:2. Their Balance Sheet as of December 31,
2014 was –

Liabilities Rs. Assets Rs.

Creditors 30,000 Building 70,000
Capital Accounts – Furniture 50,000
Amit 90,000 Debtors 50,000
Bobby 60,000
1,50,000 Cash-in-Hand 10,000
1,80,000 1,80,000
From January 1, 2015, the partners decided to share profits & losses equally. For this purpose, it was agreed that –
Building is to be valued at Rs.1,10,000.
Current Value of Furniture is to be taken at Rs.65,000; &
A provision for doubtful debts @ 10% is to be created on Debtors.
Prepare the Revaluation Account, Partners’ Capital Accounts & Opening Balance Sheet of the firm.
[ans profit on revaluation ₹20,000 partners capital A ₹1,20,000 B ₹80,000 B/S ₹2,30,000]

Q2. A, B & C were partners in a frim sharing profit and losses in 2:2:1. Their balance sheet as on 31st march 2015 was as
follows:
LIABILITIES ₹ ASSETS ₹
Bills payable 40,000 Goodwill 24,000
General reserve 30,000 Machinery 70,000
Workmen compensation reserve 10,000 Investments (market value ₹77,000) 80,000
Investment fluctuation reserve 5,000 Stock 30,000
Capital accounts Debtors 90,000
A 80,000 Less : provision (6,000) 84,000
B 1,20,000 Cash in hand 1,87,000
C 2,00,000 4,00,000 Advertisement suspense 10,000
4,85,000 4,85,000
From April 1, 2015, the partners decided to share profits equally. They have agreed upon the following terms:-
(a) Goodwill is to be valued at two years’ purchase of the average profits of the last three completed years. The profits
were – 2012-13-Rs. 70,000; 2013-14-Rs. 75,000; 2014-15-₹ 80,000.
(b) Machinery is to be depreciated by Rs.10,000 & stock is found undervalued by ₹5,000.
(c) Provision for Doubtful Debts is to be made equal to 10% of the debtors.
(d) Claim on account of Workmen Compensation is ₹6,000.
Determine the sacrifice & gain made by each partner. Also prepare Revaluation Account, Partners’ Capital Account & the
Balance Sheet of the new firm.
[ans loss on revaluation ₹8,000 partner’s capital A/c A ₹87,600 B ₹1,27,600 C ₹1,78,800 B/S ₹4,40,000]

Q3. Ram, Shyam &Hari were in partnership sharing profits in the ratio of 3:2:1. Their Balance Sheet as at 31.3.2015 was as
follows :
Liabilities ₹ Assets ₹
Bills Payables Creditors 20,000 Cash 40,000
General Reserve 20,000 Bills Receivables 5,000
Outstanding expenses 30,000 Debtors 15,000
Capital Accounts – 50,000 Stock 50,000
Ram 30,000 Furniture 20,000
Shyam 25,000 Machinery 30,000
Hari
1,05,000 Goodwill 15,000
1,75,000 1,75,000
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PROF. HARPAL SINGH 9815625813 CHANGE IN PSR
On 1.4.2015 partners decided to share profits equally. For this purpose it as further agreed that –
(1) Goodwill of the firm should be valued at ₹30,000.
(2) Furniture and Machinery is to be revalued at ₹25,000 and ₹35,000 respectively.
(3) Value of Stock is to be reduced by ₹4,000.
You are required to give necessary journal entries to give effect to the above arrangement & prepare Revaluation.
[ans profit on revaluation ₹6000 partner’s capital A/c R₹65,500 S₹33,666 H₹16,834 B/S ₹1,66,000]
Q4. Divya & Pooja are partners in a firm, sharing profits and losses in the ratio of 3:2. On 31st March 2015, their Balance
Sheet was as under –
Liabilities ₹ Assets ₹
Sundry Creditors 9,800 Goodwill 16,000
General Reserve 23,400 Land & Building 20,000
Profit & Loss A/c 4,000 Investments 66,000
Investment Fluc. Fund 12,600 Sundry Debtors 18,600
Capital Accounts – Bills Receivables 7,400
Divya 60,000 Cash-in-Hand 11,100
Pooja 40,000
1,00,000 Advertisement Suspense A/c 10,700
1,49,800 1,49,800
The partners decided that with effect from April 1, 2015, they would share profits and losses equally. For this purpose,
they decided that –
(a) Investments to be valued at ₹60,000.
(b) Goodwill to be valued at ₹24,000
(c) General Reserve not to be distributed between the partners
You are required to pass journal entries & prepare the revised Balance Sheet of the firm. [balance sheet total ₹1,17,100]