CHANGE IN PROFIT-SHARING RATIO

Topics to be discussed
Calculation of sacrifice and gain
Treatment of Goodwill
(a) Existing Goodwill
(B) Valued Goodwill

Treatment of past year profits & losses

Treatment of Revalution
Adjustment of Capital

(1) Calculation of Sacrifice & Gain

Sacrifice = Old share - New share

NOTE :- If Sacrifice is negative then

it means partner has gained

New share = Old share - Sacrifice share

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 Important

* While preparing Capital A/c or Current A/c

remember treating 3 things :

3 important
things

Treatment Treatment

Of Of

Goodwill Revalaution

Treatment
Of
Past year profits
&
Losses

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(2) Treatment of Goodwill

(a) Treatment of existing Goodwill

Write off in old Ratio

Journal Entry for Writting off existing

Goodwill

Partner Capital A/c ... Dr

to Goodwill A/c

(In Old Ratio)

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 Treatment of Valued Goodwill

Treatment - 1 Treatment - 2

Ideal Treatment Raising & Writing off Goodwill

(Adjustment through Capital A/c)

STEP-1 STEP-1
Calculate Sacrifice Raise Goodwill in the book
or in
Old Ratio
Gain

Goodwill A/c ... Dr

to Partner Capital A/c
( In Old Ratio)
STEP-2 PASS JOURNAL ENTRY

Gaining Partner Capital A/c ... Dr

to Sacrificing Partner A/c

Step-2 WRITTING OF GOODWILL

IN
NEW RATIO

Partner Capital A/c ... Dr

to Goodwill A/c

(In New Ratio)

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 Page 1

(3) Treatment of past year profit &

losses
Treatment – 1
(Ideal Treatment)

STEP -1 Calculate Sacrifice

Or Gain

STEP - 2
Pass Journal
Entry

Gaining Partner Capital A/c … Dr

To Sacrificing Partner
Capital A/c
 Page 2

Treatment - 2

If question says
If question says Pass Adjustment
book value should
reserves are not to Entry
not be changed
be distributed

STEP-1
Calculate Sacrifice or Gain

STEP -2
Pass Journal Entry

(In Case of (in Case of

Profits) Losses)

Gaining Partner A/c … Dr Sacrificing Partner A/c …Dr

To Sacrificing Partner To Gaining Partner

 Page 3

• Name of Some Past Year Profits &

Reserves
(1) Reserve
(2) Reserve Fund
(3) General Reserve
(4) Investment Fluctuation Reserve
(5) Workmen Compensation
Reserve
(6) Contingency Reserve
(7) Statement of Profit & Loss A/c
(Credit Balance)
(GIVEN IN LIABILITY SIDE OF
BALANACE SHEET)

Employees Provident
Fund Is Not a
Reserve , It is a liability

NOTE!
!!
 Page 4

• Name Of Some Past Year Losses

(1) Profit & Loss A/c (debit balance)
(GIVEN ON ASSET SIDE OF
BALANCE SHEET)
(2) Deferred Advertisement
Expenditure
(3) Deferred Revenue Expenditure

If There is Workmen
compensation Reserve
in Balance Sheet then
NOTE! do check is there any
Claim
!!
If There is IFR Given
in question then do
check the Market
Value of Investments
 Page 5

(4) Treatment of Revaluation

REVALUATION A/C
REVALUATION A/C

Step -1
Enrollment in

PARTICULARS Rs PARTICULARS Rs
NUKSAAN FAAYDE
ASSETS ASSETS
LIABILITY LIABILITY

STEP - 2

CALCULATE THE NET EFFECT

TREATMENT – 1
TREATMENT – 1
( Ideal Treatment)
 Page 6

Distribute IF Question Says Record

Revaluation Profit or the Affect Without
Loss Affecting Book Value
Or
In Old Ratio
Pass Adjustment Entry
(CALCULATE SACRIFICE
OR GAIN)

JOURNAL ENTRY FOR

DISTRIBUTING
REVALUATIO PROFIT /
LOSS? PASS
JOURNAL
ENTRY

IN CASE IN CASE OF
OF PROFIT LOSS

IN CASE IN CASE OF
OF PROFIT LOSS

Revaluation A/c … Dr Partner Capital A/c …Dr

To Revaluation A/c
To Partner Capital A/c

(In Old Ratio) ( In Old Ratio)

Sacrificing Partner
Gaining Partner Capital A/c
Capital A/c … Dr
… Dr
To Gaining
To sacrificing
Partner Capital A/c
Partner Capital A/c