Profit Sharing Ratio Part - 2

Avi and Babi were partners in a firm sharing profit or loss equally. With effect from 1st April. 2021 they agreed to share profits in the ratio of 3 : 4. Due to change in profit sharing ratio, Avi’s gain or sacrifice will be:

• Gain 1/14

• Sacrifice 1/14

• Gain 4/7

• Sacrifice 3/7

Which of the following is not required to be adjusted at the time of change in the profit sharing ratio?

• Determination of sacrificing ratio and gaining ratio

• Accounting treatment of goodwill

• Revaluation of assets and reassessment of liabilities

• Determination of the capital of the partners

At the time of change in profit sharing ratio, it is important to determine the _________ and ___________ of partners.

• Sacrificing ratio, gaining ratio

• Profit, loss

• Goodwill, profit

• Capital, profit

Answer explanation

Explanation : This may result in the gain to a few partners and loss to others. The partners who are in profit due to this change should compensate the sacrificing partner

Rohit, Divij and Kanav are partners sharing profits in the ratio of 3:2:1. They decided to change their profit sharing ratio from 1st April 2021, as 5:3:2. On that date, they have Workmen Compensation Reserve ` 60,000 and General Reserve ` 45,000. They have decided not to distribute the General Reserve.

Choose the correct statement from the following :

• Divij’s Capital Account is to be credited with ` 20,000 only

• Rohit’s Capital Account is to be credited by ` 30,000 and debited by ` 1,500

• Divij’s Capital Account is to be credited with ` 20,000 and debited with ` 1,500

• Kanav’s Capital Account is to be credited with ` 10,000 and debited with ` 1,500

Answer explanation

Explanation :Divij's capital account credited with = ` 60,000 × 2/6 = ` 20,000

Divij's capital account debited with = ` 45,000 × 1/30 = ` 1,500

There is a profit of ` 25,000 on revaluation of assets and liabilities of the partnership firm of Mohit, Kanti and John. As a result of change in profit sharing ratio Mohit sacrifices his 3/10th share in favour of John. The partners decided to record the effect of revaluation without affecting the book values of the assets and liabilities.

Which of the following will be true in reference to above situation?

• John will be debited by `7,500 and Mohit will be credited by `7,500

• Mohit will be debited by `7,500 and John will be credited by `7,500

• John will be debited by `2,500 and Mohit will be credited by `2,500

• John will be debited by `5,500 and Mohit will be credited by `5,500

X, Y and Z are partners sharing profits and losses in the ratio of 5:3:2. They decide to share the future profits in the ratio of 3:2:1. Workmen Compensation Reserve appearing in the balance sheet on the date if no information is available for the same will be:

• Distributed among the partners in old profit sharing ratio

• Distributed among the partners in new profit sharing ratio

• Distributed among the partners in capital ratio

• Carried forward to new balance sheet without any adjustment