Change in PSR

Meaning : When existing partners decide to change their profit sharing ratio
It leads to dissolution of partnership/ Reconstitution of partnership.

In case of any partner(s) gain due to change in profit sharing ratio then He/she will
compensate to sacrificing partner(s)
Sacrificing ratio = Old ratio –new ratio
Gaining ratio = New ratio –old ratio

A firm is reconstituted in the event of

1)Admission of a partner
2)Retirement of a partner
3)Death of a partner
4)Change in profit sharing ratio
5)Amalgamation of two or more partnership firm
Questions

Q.1) X,Y & Z are partners sharing profits & losses in ratio 5:3:2. with effect from 1stApril they
decide to share profits equally.
Calculate each partner’s gain or sacrifice.

Q.2) X,Y & Z are partners sharing 5:4:1 calculate new ratio if Z acquires 1/5thshare equally
from X and Y.

Q.3) P,Q & R are partners sharing profits and losses in ratio of 5:3:2. with the effect of
1stApril 2021, they agreed to share profits equally. The goodwill of
the firm was valued at ₹54,000.
goodwill already appear in old balance sheet 60,000.
pass necessary journal entries

Q.4) Ashish, Aakash and Amit are partners sharing profit and losses equally. The balance
sheet as at 31-3-2022 was as follows:

Liabilities Amount Assets Amount

Sundry creditors. 1,35,000 Cash in hand 80,000

General reserve. 90,000. Cash at bank. 1,40,000
Capital. 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 sus. 6,000
Total 11,00,000. Total 11,00,000

The partners decided to share profits in the ratio of 2:2:1. w.e.f1stApril, 2022 they also
decided that
i)Value of stock to be reduced to 1,25,000
ii)Value of machinery to be decreased by 10%
iii)Land and building to be appreciated by 62,000
iv)Provision for doubtful debts to be made @5% on sundry debtors
v)Akash was to carry out reconstitution of the firm at a remuneration of 10,000
.
Prepare Revaluation Account. And Pass the Journal entry for General reserve and
Advertisement suspense

Q.5) A and B are Partners sharing 2:1. on 31stMarch 2022, Their Balance sheet showed
General Reserve of ₹ 1,20,000. It was decided that. In Future they will share profits and
losses in the ratio of 3:2.
pass the necessary Journal entry in Both cases
Case 1) When General Reserve is not to be shown in New balance sheet
Case 2) When General Reserve is to be shown in New balance sheet

Q.6) X,Y and 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 with the effect from 1stApril 2022. They
also decide to record the effect of the following accumulated
profits, losses and reserves without affecting their book values by passing a
single Adjustment entry.
General Reserves 12,000
Profit & loss A/c (cr.) 48,000
Advertisement suspense 24,000

Q.7) A, B and C are sharing profit and losses in the ratio of 2:2:1. they decided
to share profit w.e.f. 1stApril 2022 in the ratio of 5:3:2. They also decided not to change the
value of assets and liabilities in the books of account.
The book values and revised value of assets and liabilities as on the date of
change were as follows:
Book value Revised value
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 the adjustment entry.

Q.8) Ashok, Bhimand Chetan were partners in a firm sharing profits in the ratio of 3:2:1. their
balance sheet as on 31stmarch 2021 was as follows:
Ashok, Bhimand Chetan decided to share the future profits equally w.e.f. 1stApril, 2021 for
this it was agreed that:
a)Goodwill of the firm be valued at 3,00,000
b)Land be revalued at 1,60,000 and building be depreciated by 6%
c)Creditors of 12,000 were not likely to be claimed and hence should be written back.
Prepare revaluation account, partners capital account and balance sheet of the reconstituted
firm.