Assignment - 3

Change in PSR
Concept - 1: NR/GR/SR:
1.​ X and Y were partners in a firm sharing profits in the ratio of 5:3. With effect from 1st April, 2021 they agreed to
share profits equally. Calculate the individual partner's gain or sacrifice due to change in ratio.
2.​ A and B were in partnership sharing profits equally. With effect from 1st April, 2021 they agreed to share profits
in a ratio of 4:3. Calculate the individual partner's gain or sacrifice due to change in ratio.
3.​ A and B and C were in partnership sharing profits in the ratio of 4:3:1. The partners agreed to share future profits
in the ratio of 5: 4: 3. Calculate each partner's gain or sacrifice due to change in ratio.
4.​ Mahesh, Naresh and Om were partners sharing profits in the ratio of 2:3: 4. With effect from 1 April, 2021 they
agreed to share profits in the ratio of 1:2:3. Calculate each partner's gain or sacrifice due to change in ratio.
5.​ P, Q and R are partners sharing profits equally. They decided that in future R will get 1/7 share in profits. Find
new ratio and each partner’s Gain or Sacrifice.
6.​ P, Q and R are partners sharing profits in 2:2:1. They decided that in future P will get 1/2 share in profits. Find
new ratio and each partner’s Gain or Sacrifice.
7.​ P, Q and R are partners sharing profits 5:3:2. They decided that in future Q will get 2/5 share in profits. Find new
ratio and each partner’s Gain or Sacrifice.
8.​ A, B & C are sharing profits and losses in the ratio 5:3:2. Calculate the new profit sharing ratio and sacrificing
ratio if C acquires 1/10th share from B.
9.​ X,Y and Z are partners in a firm sharing profits and losses in the ratio of 5:3:2. Z acquires 1/8th from X and 1/4th
of Y’s share. Calculate new profit sharing ratio.
10.​ A,B and C are partners in a firm sharing profits and losses in the ratio of 3:3:2. C acquires 1/8th from A and 1/3rd
of C’s share. Calculate new profit sharing ratio.
Concept - 2: Goodwill Treatment
11.​ A and B are partners sharing profits and losses in the ratio of 3: 1. It was. decided that with effect from 1st April,
2021 the profit sharing ratio will be 5:3. Goodwill is to be valued at 2 year's purchase of an average of 3 year's
profits. The profits for the years ending 31st March 2019, 2020 and 2021 were Rs. 36,000, Rs. 32,000 and Rs.
40,000 respectively. Pass the necessary journal entry for the treatment of goodwill
12.​ P, Q and R are partners sharing profits equally. They decided that in future R will get 1/7 share in profits. On the
day of change, the firm's Goodwill is valued at Rs. 42,000. Give Journal Entries arising on account of change in
profit sharing ratio.
13.​ A. B and C were partners sharing profits and losses in the ratio of 7:32 From 1st April 2021, they decided to share
profits and losses in the ratio of 8:43 Goodwill is to be valued at the average of three year's profits preceding the
date of change in profit sharing ratio. The profits for the years ending 31st March 2018, 2019, 2020 and 2021 were
Rs. 52,000, Rs. 48,000, Rs. 60,000 and Rs. 90,000 respectively. Give the necessary journal entry.
14.​ Anant, Gulab and Khushbu were partners in a firm sharing profits in the ratio of 5 : 3 : 2. From 1st April, 2014,
they decided to share the profits equally. For this purpose, the goodwill of the firm was valued at Rs 2,40,000, and
goodwill already appearing in the books were Rs 1,00,000​
Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Anant, Gulab
and Khushbu.
15.​ A,B and C are in partnership sharing profits and losses in a ratio of 4:3:3. they decide to change the profit sharing
ratio to 7:7:6. Goodwill of the firm is valued at Rs.20000. Make the necessary journal entry assuming that a
goodwill account is to be opened.
Concept -3 : Treatment of reserves & surplus and Accumulated Losses
16.​ A and B are partners in a firm sharing profits in the ratio of 3: 2. They decided to share profits in the ratio of 3: 4
w.e.f., April 1, 2021. On that date there was a credit balance of Rs. 70,000 in their Profit and Loss Account. Pass
the necessary journal entry assuming that partners decide to distribute the profits.
17.​ A, B and C are partners sharing profits and losses in the ratio of 1: 2: 3. From April 1, 2016, they decided to share
the profit in the ratio of 23:4. On that date, Profit and Loss Account disclosed a debit balance of Rs. 90,000.
Record the necessary journal entry for the distribution of the balance in the Profit and loss Account.
18.​ A and B sharing profits and losses in the ratio of 2:3, decide to share future profit and losses equally with effect
from 1st April, 2021. An extract of their Balance Sheet as at 31st March, 2021 is as follows:
Liabilities Rs. Assets Rs.

Workmen Compensation Reserve 40,000

Show the accounting treatment under the following alternative cases.
Case (i) If there is no other information.
Case (ii) If a claim on account of workmen's compensation is estimated at Rs. 25,000.
Case (i) If a claim on account of workmen's compensation is estimated at Rs. 40,000.
Case (iv) If a claim on account of workmen's compensation is estimated at Rs 50,000.
19.​ P, Q and R were partners in a firm sharing profits in the ratio of 1:1:2. On 31st March, 2018, their balance sheet
showed a debit balance of Rs. 9,000 in the profit and loss account and a Workmen Compensation Reserve of Rs.
64,000. From 1st April, 2018 they decided to share profits in the ratio of 2:2:1. For this purpose it was agreed that:
i.​ Goodwill of the firm was valued at Rs 4,00,000.
ii.​ A claim on account of workmen compensation of Rs 30,000 was admitted.
Pass necessary journal entries on reconstitution of the firm.
20.​ A, B and C sharing profits and losses in the ratio of 4.3.2, decide to share profit and losses in the ratio of 2:3:4
with effect from 1st April, 2021. Following is an extract of their Balance Sheet as at 31st March, 2021:
Liabilities Rs. Assets Rs.

Investment fluctuation Reserve 1,04,000 Investments (at cost) 10,00,000

Show the accounting treatment under the following alternative cases.
Case (i) If there is no other information.
Case (ii) If the market value of Investments is Rs. 10,00,000.
Case (iii) If the market value of Investments is Rs. 9,36,000.
Case (iv) If the market value of Investments is Rs. 8,28,000
Case (V) If the market value of Investments is Rs. 10,60,000.
21.​ Samiksha, Ash and Divya were partners in a firm sharing profits and losses in the ratio of 5:3:2. With effect from
1st April, 2019, they agreed to share future profits and losses in the ratio of 2:5:3. Their Balance sheet showed a
debit balance of Rs. 50,000 in the profit and loss account and a balance of Rs. 40,000 in the investment fluctuation
reserve. For this purpose, it was agreed that:
i.​ Goodwill of the firm is valued at Rs. 3,00,000.
ii.​ Investments of book value of Rs. 5,00,000 be valued at Rs. 4,80,000. Pass the necessary journal
entries to record the above transactions in the books of the firm.
22.​ A, B and C are partners sharing profits equally. From 1st April, 2017, they decided to share profits in the ratio of
3:4:5. On that date, Profit and Loss Account showed a credit balance of Rs.90,000. Partners do not want to
distribute the Profit and Loss Account balance but prefer to record the change by an adjustment entry. You are
required to give the adjusting entry.
23.​ X, Y and Z 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 1.4.2017. They decided to record the effect of the following, without effecting
their book values:
Profit and Loss Account Rs 24,000
Advertisement Suspense Account Rs 12,000
Pass the necessary adjusting entry.
24.​ A, B, C and D are partners in a firm sharing profits and losses in the ratio of 2211 They decided to share future
profits and losses in the ratio of 3223. For This purpose goodwill of the firm valued at Rs 1,50,000. There was
also a reserve of Rs. 60,000 in the books of the firm. Find out sacrifice ratio and gaining ratio and pass necessary
journal entry assuming that reserve is not to be distributed.
25.​ Arun and Varun were in partnership sharing profits in the ratio of 2:3 With effect from 1st May 2021 they agreed
to share in the ratio of 1: 2. For this purpose the goodwill of the firm is to be valued at two year's purchase of the
average profits of last three years, which were Rs. 1,50,000, Rs. 1,40,000 and Rs. 52,20,000 respectively.
Reserves appear in the books at Rs. 1,10,000. Partners do not want distribute the reserves. You are required to give
effect to the change by passing a single journal entry.
26.​ XY and Z are partners sharing profits and losses in the ratio of 7:54. Their balance sheet as at 31st March 2021
stood as follows:
Liabilities Rs. Assets Rs.

Capital Accounts: Sundry Assets 6,00,000

X 2,00,000
Y 1,50,000
Z 1,20,000 4,70,000
General Reserve 75,000
Profit & Loss A/c (Profits) 15,000
Creditors 40,000

6,00,000 6,00,000
Partners decided that with effect from 1st April 2021, they will share profits and losses in the ratio of 3 2 1 For this
purpose goodwill of the firm was valued at Rs 1,50,000. The partners do not want to distribute the general reserve
and profits. Pass a single journal entry to record the change and prepare a revised balance sheet.
Concept - 4 : Revaluation of Assets and Liabilities
27.​ X,Y and Z share profits as 5 : 3 : 2. They decide to share their future profits as 4 : 3 : 3 with effect from April 1,
2019,. On this date the following revaluations have taken place:
Book Value (Rs.) Revised Value (Rs.)
Investments 22,000 25,000
Plant and Machinery 25,000 20,000
Land and Building 40,000 50,000
Outstanding Expenses 5,600 6,000
Sundry Debtors 60,000 50,000
Trade Creditors 70,000 60,000
Pass necessary adjustment entry to be made because of the above changes in the values of assets and liabilities.
However old values will continue in the books.
28.​ A, B and C are sharing profits and losses in the ratio of 2 : 2 :1 . They decided to share profit w.e.f. 1st April, 2019
in the ratio of 5 : 3 : 2. They also decided not to change the values of assets and liabilities in the books of account.
The book values and revised values of asset and liabilities as on the date of change were as follows:
Book Value (Rs.) Revised Value (Rs.)
Machinery 2,50,000 3,00,000
Computers 2,00,000 1,75,000
Sundry Creditors 90,000 75,000
Outstanding Expenses 15,000 25,000
Pass an adjustment entry.
29.​ Ashish, Aakash and Amit are partners sharing profits and losses equally. The Balance Sheet as at 31st March 2019
was as follows:
Liabilities Rs. Assets Rs.
Sundry Creditors 75,000 Cash in Hand 24,000
General Reserve 90,000 Cash at Bank 1,40,000
Capital A/cs : Sundry Debtors 80,000
Ashish 3,00,000 Stock 1,40,000
Aakash 3,00,000 Land and Building 4,00,000
Amit 2,75,000 8,75,000 Machinery 2,50,000
Advertisement Suspense 6,000
Total 10,40,000 Total 10,40,000
The partners decided to share profits in the ratio of 2 : 2 :1 w.e.f, 1st April, 2019. They also decided that-
i.​ Value of stock to be reduced to Rs. 1,25,000.
ii.​ Value of machinery to be decreased by 10%.
iii.​ Land and Building to be appreciated by Rs. 62,000.
iv.​ Provision for Doubtful Debts to be made @ 5% on Sundry Debtors.
v.​ Aakash was to carry out reconstitution of the firm at a remuneration of Rs. 10,000.
Pass necessary Journal entries to give effect to the above.
30.​ A, B and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheets as at 31st March,
2019 Stood as follows-
Liabilities Rs. Assets Rs.
Capital A/cs: Land and Building 3,50,000
A 2,50,000 Machinery 2,40,000
B 2,50,000 Computers 70,000
C 2,00,000 7,00,000 Investments (Market Value Rs. 60,000) 1,00,000

General Reserve 60,000 Sundry Debtors 50,000

Investment Fluctuation Reserve 30,000 Cash in Hand 10,000

Sundry Creditors 90,000 Cash at Bank 55,000

Advertisement Suspense 5,000
Total 8,80,000 Total 8,80,000
They decide to share profits equally w.e.f. 1st April, 2019. They also agreed that-
i.​ Value of Land and buildings decreased by 5%.
ii.​ Value of Machinery will be increased by 5%.
iii.​ A Provision for Doubtful Debts be created @ 5% on Sundry Debtors.
iv.​ A Motorcycle valued at Rs. 20,000 was unrecorded and is now to be recorded in the books.
v.​ Out of Sundry Creditors, Rs. 10,000 is not payable.
vi.​ C was to carry out the work for reconstituting the firm at a remuneration (including expenses) of
Rs. 5,000. Expenses came to Rs. 3,000.
Prepare a Revaluation Account.
31.​ A, B and C are partners sharing profits and losses in the ratio of 2:2:1 From 1st April, 2019 they decided to share
future profits and losses equally. Following balances appeared in their books:
Profit and Loss A/c (Cr) 20,000
Advertisement Suspense A/c (Dr) 15,000
 Workmen Compensation Reserve 60,000
It was agreed that:
i.​ Goodwill should be valued at two year's purchase of super profits. Firm's average profits Firm's
average profits are Rs. 75,000. Capital invested in the business is Rs 6,00,000, and normal rate of
return is 10%,
ii.​ Furniture (book value of Rs 50,000) be reduced to Rs. 30,000.
iii.​ Computers (book value of Rs. 40,000) be reduced by Rs. 10,000,
iv.​ Claim on account of Workmen's Compensation amounted to Rs. 50,000.
v.​ Investments (book value of Rs. 30,000) were revalued at Rs. 25,000.
Pass necessary journal entries for the above.
32.​ Asha, Rina and Chahat were partners in a firm sharing profits and losses in the ratio of 2:21. Their Balance Sheet
as at 31st March, 2019 was as follows:
Liabilities Rs. Assets Rs.

Capital Accounts: Plant and Machinery 14,80,000

Asha 3,00,000 Stock 2,20,000
Rina 2,00,000 Debtors 2,60,000
Chahat 1,00,000 6,00,000 Less: Pro. For doubt. Debts (20,000) 2,40,000
General Reserve 2,00,000 Cash at Bank 60,000
Creditors 12,00,000

20,00,000 20,00,000
Asha, Rina and Chahat decided to share future profits equally with effect from 1 April, 2019, For this, it was agreed
that:
i.​ Goodwill of the firm be valued at Rs 1,50,000
ii.​ Bad debts amounted to Rs. 40,000. A provision for doubtful debts was to be made @ 5% on
debtors.
Pass the necessary journal entries to record the above transactions in the books of the firm.
Concept - 5 Full fledge with Adjustment of Capital
33.​ A, B & C were partners in a firm sharing profits & losses in the ratio of 2.2.1. On March 31. 2018, their Balance
Sheet was as follows:
Liabilities Rs. Assets Rs.

Capital Accounts: Land & Building 3,00,000

A 2,00,000 Stock 1,60,000
B 1,50,000 Debtors 80,000
C 90,000 4,40,000 Cash at Bank 10,000
General Reserve 40,000
Creditors 70,000

5,50,000 5,50,000
From April 1, 2018, they decided to share future profits in the ratio of 1:23. For this purpose the following were
agreed upon:
i.​ Goodwill of the firm was valued at Rs. 450,000
ii.​ Land & Building will be appreciated by 20%.
iii.​ Capitals of the partners will be in proportion to their new profit sharing ratio. For this purpose
Current Accounts will be opened.
Pass necessary Journal entries for the above transactions in the books of the firm.
34.​ A, B and C are partners in a firm sharing profits in the ratio of 3:2:1. Their Balance Sheet as at 31st March, 2017
is as under:
 Liabilities Rs. Assets Rs.

Capital Accounts: Premises 3,00,000

A 3,00,000 Stock 1,20,000
B 1,50,000 Debtors 2,50,000
C 1,00,000 5,50,000 Cash at Bank 20,000
General Reserve 1,20,000 Machinery 1,80,000
Creditors 2,00,000

8,70,000 8,70,000
From 1st April, 2017, the partners agreed to share future profits in the ratio on 43 3 and make the following
adjustments:
i.​ Premises will be appreciated by 10% and stock by Rs. 10,000.
ii.​ A provision for doubtful debts is to be made on debtors 24%.
iii.​ Sundry Creditors be reduced by Rs. 15,000
iv.​ Machinery will be depreciated by 5%
v.​ Goodwill of the firm is valued at Rs 48,000.
Prepare Revaluation Account, Partner's Capital Accounts and Balance Sheet of the reconstituted firm.
35.​ S, T, U and V were partners in a firm sharing profits in the ratio of 4:3:2:1, On 1 4-2016 their Balance Sheet was
as follows:
BALANCE SHEET OF S, T, U AND V
as at 1-4-2016
Liabilities Rs. Assets Rs.

Capital Accounts: Fixed Assets 4,40,000

S 2,00,000 Current Assets 2,00,000
T 1,50,000
U 1,00,000
V 50,000 5,00,000
Workmen Compensation Reserve 60,000
Creditors 80,000

6,40,000 6,40,000
From the above date partners decided to share the future profits in 3:1:2:4 ratio. For this purpose, the goodwill of the
firm was valued at Rs 90,000. The partners also agreed for the following:
i.​ The claim for workmen compensation has been estimated at Rs.70.000
ii.​ To adjust the capitals of the partners according to the new profit sharing ratio by opening partners
current accounts.
Prepare Revaluation Account, Partners Capital Accounts and the Balance Sheet of the reconstituted firm.
36.​ P, Q and R were partners sharing profits in the ratio of 132 Following was their Balance Sheet as at 31st March,
2018:
Liabilities Rs. Assets Rs.

Capital Accounts: Land and Building 5,00,000

P 2,00,000 Investments 1,25,000
Q 5,00,000 (Market Value Rs.1,10,000)
R 3,00,000 10,00,000 Stock 2,20,000
Workmen Compensation Reserve 60,000 Sundry Debtors 3,20,000
Investment Fluctuation Reserve 45,000 Bank Balance 1,60,000
Creditors 2,80,000 Advertisement Suspense 75,000
 Outstanding Expenses 15,000

6,40,000 6,40,000
On 1st April, 2018 they decided to share future profits in the ratio of 4:6:5. It was agreed that:
i.​ Claim for Workmen Compensation has been estimated at Rs 1,00,000.
ii.​ A motorcycle valued at Rs. 30,000 was unrecorded and is now to be recorded in the books.
iii.​ Outstanding expenses were not payable anymore.
iv.​ Value of stock will be increased to Rs. 2,90,000.
v.​ A provision for doubtful debts be created of 5% on Sundry Debtors.
vi.​ Goodwill is valued at Rs. 1,00,000.
vii.​ The work of reconstitution was assigned to the firm's auditors. They were paid Rs 20,000 for this
work.
viii.​ To adjust the capitals of the partners according to the new profit sharing ratio by opening partners
current accounts.
Prepare Revaluation Account, Partners Capital Accounts and the Balance Sheet of the reconstituted firm.
37.​ X and Y are partners sharing profits and losses in the ratio 4:3. Their Balance Sheet as at 31 st March, 2016 stood
as follows:
Liabilities Rs. Assets Rs.

Capital Accounts: Cash 20,000

X 2,40,000 Stock 1,40,000
Y 1,20,000 3,60,000 Sundry Debtors 1,20,000
Reserve 42,000 Fixed Assets 1,50,000
Creditors 28,000

4,30,000 4,30,000
They decided that with effect from 1st April, 2016, they will share profits and losses in the ratio of 2:1. For this
purpose they decided that:
i.​ Fixed assets are to be depreciated by 10%.
ii.​ A provision of 6% be made on debtors for doubtful debts.
iii.​ Stock be valued at Rs 1.90.000,
iv.​ An amount of Rs. 3,700 included in creditors is not likely to be claimed.
v.​ Partners decided to record the revised values in the books However, they do not want to disturb
the reserves.
You are required to prepare journal entries, capital accounts of the partners and the revised balance sheet.
38.​ P, Q and R are in partnership sharing profits and losses in the ratio of 5:43. On 31st March 2019, their balance
sheet was as follows:
Liabilities Rs. Assets Rs.

Capital Accounts: Plant and machinery 4,20,000

P 4,00,000 Stock 3,00,000
Q 3,00,000 Sundry Debtors 2,10,000
R 2,00,000 9,00,000 Bank Balance 40,000
General Reserve 75,000 Furniture 60,000
Creditors 50,000
Outstanding Expenses 5,000

10,30,000 10,30,000
 It was decided that with effect from 1st April 2019, the profit sharing ratio will be 4:3:2. For this purpose the
following revaluations were made:
i.​ Furniture can be taken at 80% of its value.
ii.​ Stock be appreciated by 20%.
iii.​ Plant & Machinery be valued at Rs 4,00,000.
iv.​ Create provision for doubtful debts for Rs. 10,000 on debtors
v.​ Outstanding expenses be increased by Rs. 3,000.
Partners agreed that altered values are not to be recorded in the books and they also do not want to distribute the
general reserve.
You are required to post a single journal entry to give effect to the above. Also prepare the revised Balance Sheet.
39.​ L, M and N are partners sharing profits and losses in equal proportion. On 31st March 2016, their balance sheet
was as follows:
Liabilities Rs. Assets Rs.

Capital Accounts: Fixed Assets 2,20,000

L 2,00,000 M Stock 1,80,000
1,00,000 Sundry Debtors 75,000
N 80,000 3,80,000 Less: Pro. for D/D (3,000) 72,000
General Reserve 42,000 Cash 8,000
Creditors 58,000

4,80,000 4,80,000
The partners decided that with effect from 1st April 2016, they will share Profits and losses in the ratio of 4:2:1. For
this purpose goodwill is to be valued at 2 year's purchase of the average profits of the last four years, which were:
Year ending 31st March 2013 Rs. 20,000 (Loss)
Year ending 31st March 2014 Rs. 48,000 (Profit)
Year ending 31st March 2015 Rs. 60,000 (Profit)
Year ending 31st March 2016 Rs. 80,000 (Profit)
They further agreed that:
i.​ Provision for doubtful debts be increased by Rs. 2,000.
ii.​ Provision for doubtful debts be increased by Rs. 2,000.
iii.​ Creditors be taken at Rs. 49,000.
Partners do not desire to record the revised values of assets and liabilities in the books. They also desire to leave the
reserve and surplus undisturbed.
You are required to give effect to the change in profit sharing ratio by passing a single
journal entry. Also prepare the revised balance sheet.
40.​ Piyush, Puja and Praveen are partners sharing profits and losses in the ratio of 3:3:2. There Balance Sheet as on
March 31st 2021 was as follows :
Liabilities (Rs.) Assets (Rs.)
Sundry Creditors 48,000 Cash at bank 74,000
Bank Loan 72,000 Sundry Debtors 88,000
Capital: Stock 2,40,000
Piyush 4,00,000 Machinery 3,18,000
Puja 3,00,000 Building 4,00,000
Praveen 3,00,000 10,00,000
11,20,000 11,20,000
======= =======
Partners decided that with effect from April 1, 2021, they would share profits and losses in the ratio of 5:3:2. It was
agreed that :
i.​ Stock be valued at Rs. 2,20,000.
ii.​ Machinery is to be depreciated by 10%
iii.​ A provision for doubtful debts is to be made on debtors at 5%.
iv.​ Building is to be appreciated by 20%
v.​ A liability for Rs. 5,000 included in sundry creditors is not likely to arise.
vi.​ Partner decided that their capital should be the same as before in the proportion of new profit share if
required, bank overdraft can be opened.
You are required to prepare a Revaluation account, partner’s capital Accounts and revised Balance Sheet.