ingher 3 (hanye in Pndn Sharing Ptio krneng the Erting Partrers 3.

1
WorkingMotes
Goinonfhce of Partier
Anil Harnesh
Sunil
tlew Profit Share 1/3 1/3
old Proft Share 5/10 3/10 2/10

13 1 1 2 4
Difference
3 10 3 10 30 3 10 30
Sacrificing artrner GainingPartner Gaining Partner

Compensation payable by Sunil to Anil 108,000 % 1 s300.

ompenation payabile by Rarnesh to Arnil =? 1,08,00 30

14400.
(ú) Ifcapitals are fized:
JOURNAL
Date Particulars Dr, 3) Cr. ()
2022
Aodi 1 Anil's Curret A/c ( 18,000 %5/10) .Dr. 9,000
Sunil's Current Ae ( 18,000 3/10) ..Dr, 5400
Rarnesh's Current A/c ( 18,000 %2/10) .Dr, 3,600
To Goodwil A/cL 18,000
(Exsting goodvill written off in old ratio)
Sunil's Current Alc (7 1,08,000% 1/30) .Dr. 3,600
Rameshis urrent AWc ( 1,08,000%A/30) .Dr. 14400
To Anils Curent Ac (2 108,000 %5/30) 18,000
(Adjustrnentof Goodwill on change in profitsharing ratio)
(Úi) By raininy and writing off gootwll:
JOURNAL

Date Particúlars LF. Dr. () Cr. )

2023
Aprl 1 Anils CaptalA/c (7 18,000 x5/10) ..Dr. 9,000
Sunil's Capital A/c (7 18,000%3/10) .Dr. 5,400
Ramesh's Capital A/c ( 18,000 %2/10) .Dr, 3,600
To Goodwill A/c 18,000
(Existing goodwill written off in old ratio)
GoodwillA/e .Dr.1,08,000a
To Anil's Capital A/el 54,000
To Sunils Capltal A/calisgo 0 32,400
To Ramesh's Capltal A/ea 21,600
(Goodwill raised and credited to Partners' Capltal Accounts in their old
profit-sharingratio)
 XIIonl
3.12 Double Entry Book Keeping--CBSE
..Dr.
..Dr.
36,000
Anil's Capital A/c
Sunil's Capital A/c ..Dr.
36,000
Ramesh's Capital A/c
36,000
To Goodwill A/c
(Goodwill written off in their new profit-sharing ratio)
Calculation of New Profit-ssharing Ratio onthe basis of Adjustment of Goodwill

Illustration 9.
Harry, Porter and Ali are partners in a firm sharing profit and losses in the raio
5:3:2. They decide to change their profit-sharing ratio with effect from 1st April, 2023
entry is recorded for
Due to change in profit-sharing ratio, following Journal
of goodwill: adjustmem
JOURNAL
LF. Dr.()
Date Particulars
2023
..Dr. 6,000
April 1| Porter's Capital A/c 1,80,000 x1/30)
Ali's Capital A/c ( 1,80,000 x 4/30) .Dr. 24,000
To Harry's Capital A/c 1,80,000 x5/30) 30,00
(Adjustment made for goodwillon change in profitsharing ratio)
What will be the new profit-sharing ratio of Harry, Porter and Ali?
Solution: New Profit Share = Old Profit Share - Profit Share sacrificed or
+ Profit Share acquired
5 5 15-5 10
Harry's New Profit Share =
10 30 30 30

3 1 9+1 10
Porter's New Profit Share = +
10 30 30 30

Ali's New Profit Share =

2 4 6+4 10
10 30 30 30

New profit-sharing ratio of Harry, Porter and Ali will be 10/30 : 10/30 : 10/30 or 1:1:1

3. ACCOUNTING OF RESERVES, ACCUMULATED PROFITS AND LOSSES

If, at the time of change in profit--sharing ratio, reserves, accumulated profits and losses
exist in the books of the firm, they are transferred to the Partners' Capital Accounts
(if capitals are fluctuating or Current Accounts (if capitals are fixed) in their old profit
sharing ratio. They are transferred because reserves, accumulated (undistributed) profitsand
losses as on the date of change in profit-sharing ratio were earned before the profit-sharing
ratio changed.
 Chapter 3 Change in Proht Sharing Ratio Armong the Exsting Partners 3.13
The ounnal entries passed are:
) For transfer of Reserres and Accumulated Profits:
Reserve A Dr.
Profit &Loss A/c (Cr. Balance) D1.
Workmen Compensation Reserve A/c Dr. (Excess of Reserve over Liablity!
Investments Fluctuation Reserve Ac LDr. (Excess of Reserve over the Difference
between Book VYlue and Market Valuel
To All Partners' Capital (or Current) A/cs [ln Old Profit-sharing Ratiol

(ü) For transfer of Accumulated Losses and Defjerred Rerenue Expenditure:

All Partners' Capital (or Current) A/cs Dr. [In Old Profit-shanng Ratio)
To Profit &Loss A/c (Dr. Balance)
To Deferred Revenue Expenditure Ac (Say, Advertisement Suspense Account)

Accounting of General Reserve

General Reserve is a fre reserve that is used in the manner as decided by the partners. I
the question does not specify the use of General Reserve, it is distributed among the partners
in their old profit-sharing ratio. In case, they deide to transfer part of General Reserve to
another reserve (say, Workmen Compensation Reserve or Investments Fluctuation Reserve),
the amount decided by the partners is transferredto that reserve and the balance amount is
transferred to theCapital/Current Accounts of the partners in their old profit-sharing ratio.
Let us take examples for understanding it more clearly.
Example 1
Akhil, Bikram and Pawan are partners in afirm sharing profits in the ratio of 5:3:2. They
decided to share profits, w.e.f., lst April, 2023 in the ratio of 2:3:5. On the date of change
in profit-sharing ratio, the firm had balance in General Reserve of 1,00,000.
Pass the Journal entry for distributing General Reserve on change in profit-sharing ratio.
Solution: JOURNAL

Date Particulars LIF. Dr.) Cr. )

2023
1 General Reserve A/c .Dr. 1,00,000
April
To Akhil's Capital Ac 50,000
To Bikram's Capital A/c 30,000

To Pawan's Capital A/c 20,000

(General Reserve distributed among partners in their old profit-sharing ratio)

Example 2
They
Vivek, Anil and Raman are partners in a firm sharing profits in the ratio of 5:3: 2.
decided to share profits, in the ratio of 2:3:5 w.ef., 1st April, 2023. On the date of change
agreed by
in profit-sharing ratio, the firm had balance in General Reserve of ? 1,00,000. It was
Compensation
the partners that out of General Reserve 50,000 be transferred to Workmen
Reserve to meet a claim of workers, if any.
Pass the Journal entry for distributing General Reserve on change in profit-sharing ratio.
 3.14 Double Entry Book Keeping-CBSt Xl
JOURNAL
Solution: LF.
Date
Dr. )
ParticularsS
2023 ..Dr.
April 1 General Reserve A/c 1,00,000
lo Workmen Compensation Reserve A/C
To Viveks Capital AC
To Anil's apital A/c
To Raman's Capital A/C
profit-sharing
(General Reserve distributed among partners in their old Reserve) 109 0
ratioafter transferring 50.000 to Workmen Compensation

Accounting of Workmen Compensation Reserve

worKmen Compensation Reserve is a reserve set aside (appropriated) out of firm's
to meet liability (claim) of compensation payable to employees, if it arises (say,
l dccident). It means, a claim may or mav not arise. It also means that claim may be beecause of
to or less or more than amount of reserve. At the time of change in pront-sharing ratio à
accounting treatment is as follows:
When Claim against Workmen Compensation Reserve does not Exist
In this situation amount of Workmen Compensation Reserve is transferred to the
Capital Accounts in their old profit-sharing ratio being in the nature of free reserve. The Partners
Journal entry passed is:
Workmen Compensation Reserve A/c ..Dr.
To Partners' Capital (or Current) A/cs
2. When Claim for Workmen Compensation Exists
In this situation, treatment of Workmen Compensation Claim will depend on the amount of
liability (claim) against Workmen Compensation Reserve. There are three possibilities as follows
(i) Workmen Compensation Claim is Equal to the Amount of Work1men Compensation Resene.
In such a case, total amount of Workmen Compensation Reserve is transferred to
Workmen Compensation Claim Account to meet the liability. Since the amount of
Workmen Compensation Reserve and Workmen Compensation Claim (Liability)
are same, no amount is transferred to Partners' Capital (or Current)
Accounts. The
Journal entry passed is:
Workmen Compensation Reserve A/c ..Dr.
To Workmen Compensation Claim A/c
(ii) WorkmenCompensation Claim is less than the Amnount of WorkmenCompensation Resere
The amount up to the claim amount is
transferred to Workmen Compensation Claim
Account from Workmen Compensation Reserve to meet the
amount is transferred to the credit of Partners' Capital (or claim liability. Balarnce
their old profit-sharing ratio, it being free reserve tothe Current) Accounts
of the reserve. The Journal entry
extent of balance amourt
passed
is:
Workmen Compensation Reserve A/c
To Workmen Compensation Claim A/c ...Dr.
To Partners' Capital (or Current) A/cs
 Chapter 3- Change in Profht-Sharing Ratio Among the Existing Partners 3l
(ii) Workmen Compensation Claim is more than the Amouont of Worknen Compensation Kesere:
In such a case, the amount of Workmen Compensation Reserve together with tne
amount of claim, in excess of reserve is credited to Workmen Compensation Claim
Account. The amount in excess of reserve is debited to Revaluation ACCount because
it is aloss to be borne by the partners in their old profit-sharing ratio. The Journal
entries passed are:
Workmen Compensation Reserve A/c ..Dr.
Revaluation A/c ..Dr.
To Workmen Compensation Claim A/c
Partners' Capital (or Current) A/cs ..Dr. [In Old Profit-sharing Ratio]
To Revaluation A/c

Illustration 10 (Treatment of Workmen Compensation Reseroe).

Ram, Shyam and Mohan sharing profits and losses in the ratio of 4:3:2, decide to share
profits arnd losses in the ratio of 2:3:4 with effect from 1st April, 2023. An extract of their
Balance Sheet as at 31st March, 2023 is:
Liabilities Assets

Workmen Compensation Reserve 90,000

Show the accounting treatment under the following alternative cases:

Case 1. When no information as to claim is given.
Case 2. When there is no claim.
Case 3. When a claim on account of workmen compensation is ? 45,000.
Case 4. When a claim on account of workmen compensation is 99,000.
Case 5. When a claim on account of workmen compensation is 90,000.

Solution: JOURNAL

Particulars
LF. Dr. () Cr. )
Date

2023
April
Case 1 Workmen Compensation Reserve A/c .Dr. 90,000
To Ram's Capital A/c 40,000
30,000
To Shyam's Capital A/c
20,000
To Mohan's Capital A/c
(Transfer of Workmen Compensation Reserve to Partners' Capital
Accounts in their old profit-sharing ratio)
Case 2 Same entry as given in Case 1.
..Dr. 90,000
Case 3 Workmen Compensation Reserve A/c
45,000
To Workmen Compensation Claim A/c
20,000
To Ram's Capital A/c
15,000
To Shyam's Capital A/c
10,000
To Mohan's Capital A/c
(Transfer of surplus Workmen Compensation Reserve to Partners' Capital
Accounts in their old profit-sharing ratio)
 3.16 Double EntryBook Keeping-CBSE XII
Case Workmen Compensation Reserve AC ..Dr.
.Dr.
90,000
Revaluation A/c 9,000
To Workmen Compensation Claim A/c
(Shortfall debited to Revaluation Account) 99 00
Ram's Capital A/c ...Dr.
4,000
Shyam's Capital A/C ...Dr.
3,000
Mohan's Capital A/C .Dr. 2,000
To Revaluation A/c

(Iransfer of loss on revaluation to Partners' Capital Accounts in their 9,000

old profit-sharing ratio)
Case 5 Workmen Compensation Reserve A/c ...Dr.
90,000
To Workmen Compensation Claim A/c
(Workmen Compensation Claim accounted) 90,000

Accounting of Investments Fluctuation Reserve

Investments are recorded in the books of the firm at cost. However, its market valo
may be equal to or lower or higher than its book value. Investmernts Fluctuation Reserve
1s a reserve set aside out of profits to meet fall in the market value of
investments A:
the time of change in profit-sharing ratio, the accounting of
Reserve is as follows:
Investments Fluctuation

1. When Market Value of Investments is equal to Book Value

The amount of Investments Fluctuation Reserve is transferred to Partners' Capital
(or Current) Accounts in their old profit-sharing ratio, it being in the nature of free
reserve. The entry is:
Investments Fluctuation Reserve Ac ..Dr.
To Partners' Capital (or Current) A/cs [In Old Profit-sharing Ratiol
2. When Market Value of Investments is lower than Book Value
In such a case, treatment of Investments Fluctuation Reserve will depend on the
amount
of decrease in the market value. There are three possibilities as follows:
(i) Fall in Value of Investments is Less than lnvestments Fluctuation Reserve:
Investments Fluctuation Reserve, to the extent of fall in value. is transferred
to Investments Account and balance is distributed among the partners in their
old profit-sharing ratio, the balance amount being in the nature of free
reserve.
The entry is:
Investments Fluctuation Reserve A/c
...Dr.
To Investments A/c
|Book Value - Market Valuel
To Partners' Capital (or Current) A/cs [In Old Profit-sharing Ratiol
 3.17
Chapter 3. (hange in Profht Sharing Ratio Amongthe Existing Partners
o) Lal iducof nemont Lyual to aestucuts lluctuatton Resere:
the amount ot hvestments Huctuation Reserve is transterred to Investments Accout
and no ount is distbuled among the partners, since the total amount of reserve
I Udto meet he loss, ic, fall in the value of investment. The entry 15.
nvestments Fluctuation Reserve A/c .Dr.
lo Investments Ac

) Fall nValue of Investeuls is More than Iuvestments Fluctuation Resere:

Iotal amount of Investments Fluctuation Reserve along with balance amount of fall
in value is transferred to Investments Account. The amount in excess of amount or
Investments Fluctuation Reserve is transferred to the debit of Revaluation AcCount,
it being a loss to beshared by all the partners in their old profit-sharing ratio.
The entries are:
Investments Fluctuation Reserve A/c ..Dr.
Revaluation A/c ..Dr.
To Investments A/c
Partners' Capital (or Current) A/cs ..Dr. [In Old Profit-sharing Ratio]
To Revaluation A/c

3, When Market Value of Investments is higher than Book Value

Total amount of Investments Fluctuation Reserve is distributed among partners and
increase in value (i.e., Market Value - Book Value) of investments is transferred to the
Credit of Revaluation Account, it being a gain (profit) to be shared by all the partners in
their old profit-sharing ratio. The entries are:
(i) Investments Fluctuation Reserve A/c ..Dr.
To Partners' Capital (or Current) A/cs [In Old Profit-sharing Ratio)
(i1) Investments A/c ..Dr. [Investments Brought
To Revaluation A/c up to Market Value]

(ii) Revaluation Ac ...Dr.

To Partners' Capital (or Current) A/cs [In Old Profit-sharing Ratio]
1llusiralion 11 (Treatment of Investments Fluctuation Reserve).
Gaurav, Sourav and Kabir sharing profits and losses in the ratio of 4: 3:2, decide to share
future profits and losses in the ratio of 2:3: 4 with effect from 1st April, 2023. An extract
of their Balance Sheet as at 31st March, 2023 is:
Liabilities Assets

Investrnents Fluctuation Reserve 18,000 Investments (At cost) 2,00,000

Show the accounting treatment under the following alternative cases:

When there is no other information.
When market value of investments is 2,00,000.
When market value of investments is 1,91,000.
When market value of investments is 2,18,000.
When market value of investments is1,73,000.
 Particulars
2023 Dr.)
April 1
Case 1|Investments
Fluctuation Reserve .Dr.
A/C* 18,000
To Gourav's Capital A/c
To Sourav's Capital Alc
To Kabir's Capital A/c
(lranster of Investments Fluctuation Reserve to Partners' Capital Accounts
in their old
Case profit-sharing ratio)
2| Same entry as given in
Case 1.
Case 3| Investments Fluctuation Reserve A/c ...Dr.
To Investments A/c 18,000
To Gourav's Capital A/c
To Sourav's Capital Ac
To Kabir's Capital A/c 300
(Iranster of excess lnvestments Fluctuation Reserve to Partners' Capital 2,0
Accounts in their old profit-sharing ratio)
Case 4| Investments Fluctuation Reserve A/c
..Dr. 18,000
To Gourav's Capital A/c
To Sourav's Capital A/c 8,00
To Kabir's Capital A/c 60
(Transfer of Investments Fluctuation Reserve to Partners' Capital 4,000
Accounts in their old profit-sharing ratio)
Investments A/c .Dr.
To Revaluation A/c
18,000

(Value of investments brought up to market value) 180

Revaluation A/c
.Dr. 18,000
To Gourav's Capital A/c
8,00
To Sourav's Capital A/c
6,00
To Kabir's Capital Ac
4,00
(Transfer of gain (profit) on revaluation)
Case 5| Investments Fluctuation Reserve A/c .Dr. 18,000
Revaluation A/c
..Dr. 9,000
To Investments AC
27,0
(Fall in value of investments adjusted through Investments
Fluctuation Reserve and shorttall charged to Revaluation Account)
Gourav's Capital A/c
.Dr. 4,000
Sourav's Capital A/c
..Dr. 3,000
Kabir's Capital A/c
..Dr. 2,000
To Revaluation A/c 9.000
Transfer of loss on revaluation to Partners' Capital Accounts
in the old profit-sharing ratio)
*|t is assumed that market value of investments is 2.00.000
 3.19
ExistingPartners
Chapter 3- Change in Profit-Sharing| RatioAmongthe

Accounting of Deferred Revenue Expenditure accOunting

revenue expenditure benefit of which is expected to be for more than one
It is a
period. Deferred Revenue Expenditure is written off over the period during
which itis likelyto
asset.
is afictitious
benefitthe business. Itis not really an asset, which has realisable value but
written off
Atthe time of change in profit-sharing ratio, Deferred Revenue Expenditure is
bv transferring it to the debit of Partners' Capital or Current Accounts
in their old profit-
sharing ratio. The Journal entry is:
Partners' Capital (Current) A/cs ..Dr.

To Deferred Revenue Expenditure A/c (Say Advertisement Suspense A/C)

Illustration 12.

Hardeep and Sandeep are partners sharing profits in the ratio of 4: 1. They decide to share
profits equally w.e.f. 1st April, 2023. Their Balance Sheet as at 31st March, 2023 shows a
balance of advertisement suspense of 20,000. Passthe Journalentry at the time of change
in profit-sharing ratio.
Solution: JOURNAL

Date Particulars LF. Dr. ) Cr. )

2023
1| Hardeep's Capital A/c ...Dr. 16,000
April
Sandeep's Capital A/c .Dr. 4,000
To Advertisement Suspense A/c 20,000
(Advertisement Suspense Account written off)

REMEMBER
1. Reserves, Accumulated Profits and Losses are distributed even if the question is silent.
2. Workmen Compensation Reserve is a reserve set aside out of proñt to meet the liability towards workmen, if
any, that may arise.
3. Investments Fluctuation Reserve is a reserve set aside out of profit to meet the fall in value of Investments, ie.
when Market Value of Investment is lower than its Book Value.

4. Deferred Revenue Expenditure is arevenue expenditure written off in more than one accounting period. It being
afhctitious asset is transferred to the debit of Partners' Capital Accounts in their old profit-sharing ratio at the
time of change in proht-sharing ratio.

Illustration 13 (Distribution of Accumulated Losses).

Xand Yare partners in a firm sharing profits in the ratio of 3 : 2. They decide
to share future profits equally. On the date of change in the profit-sharing ratio,
Profit & Loss Account had a debit balance of ? 50,000. Pass Journal entry for
distribution of balance in Profit &Loss Account before change in the profit-sharing ratio.
 3.20 Double Entry Book Keeping-CBSE XII
JOURNAL
Solution: LF. Dr. )
Date Particulars .Dr. 30,000
X's Capital A/c .Dr. 20,000
Y's Capital A/c
To Profit & Loss A/c the
to the Capital Accounts of
(Undistributed loss transferred
Partners on change in the profit-sharing ratio)

Illustration
X, Yand Z14. are partners sharing profits and losses in the ratio of 5:3 :2. They decide to
2023
effect from 1st April,
share profits and losses in the ratio
1S the extract of their Balance
of 2:3:5 with
Sheet as at 31st March, 2025: Folowing
Liabilities
General Reserve
Assets
75,000 Advertisement
Suspense A/c -(ä
Profit &Loss A/c 37,500
Workmen Compensation Reserve 12,500

Pass necessary Journal entries.

JOURNAL
Solution:
LE. Dr. ()
Date Particulars
2023
...Dr. 75,000
April General Reserve A/c
...Dr. 37,500
Profit & Loss A/c
..Dr. 12,500
Workmen Compensation Reserve A/c
62,50
To X's Capital A/c
To Y's Capital A/c
37,500
25,00
To Z's Capital A/c
their
(Transfer of Reserves and accumulated Profits to old partners in
old profit-sharing ratio)
.Dr. 25,000
X's Capital A/c
.Dr. 15,000
Y's Capital A/c
.Dr. 10,000
Z's Capital A/c
To Advertisement Suspense A/c 50,000

(Transfer of balance of Advertisement Suspense Account to old

partners in their old profit-sharing ratio)

Illustration 15.
5:3:2
Samiksha, Ash and Divya were partners in a firm sharing profits and losses in the ratio of
With efect from 1st April, 2019, they agreed to share future profits and losses in the ratio of
2.5:3.TheirBalance Sheet showed a debit balance of 50,000 in theProfit & Loss Account and
a balanceof T40,000 in the Investment Fluctuation Fund. For this purpose, it was agreed that.
() Goodwill of the firm be valued at 3,00,000.
(ii) Investments of book value of ? 5,00,000 be valued att4.80.000.
Pass the necessary Journal entries to record the above transactions in the books of the firm.
(CBSE2020)
 Chapter 3- Change in Profit-Sharing Ratio Among the Existing Partners 3.21
Solution: JOURNAL
Date Particulars
LF. Dr. () Cr. )
2019
April 1 Samiksha's Capital A/c
..Dr. 25,000
Ash's Capital A/c ...Dr. 15,000
Divya's Capital A/c ..Dr. 10,000
To Profit &Loss A/c
50,000
(Undistributed loss transferred to Partners' Capital Accounts in
their old profit-sharing ratio)
Investment Fluctuation Fund A/c .Dr. 40,000
To Investment A/c 20,000
To Samiksha's Capital A/c 10,000
To Ash's Capital A/c 6,000
To Divya's Capital A/c 4,000
(Investments Fluctuation Fund distributed to Partners' Capital Accounts
after meeting the decrease in the value of investments in their old profit
sharing ratio)
Ash's Ca[ital A/c ...Dr. 60,000
Divya's Capital A/c .Dr. 30,000
To Samiksha's Capital A/c 90,000
(Adjustment entry made for goodwill) (WN 1and 2)

Working Notes:
1. Calculation of Gain/Sacrifice ofpartner:
Sacrificed Share = Old Profit Share - New Profit Share
5 2 3
Samiksha = (Sacrifice)
10 10 10
3 5 2
Ash = =
(i.e, a Gain)
10 10 10
3
Divya = (i.e., a Gain)
10 10 (10
2
2. Compensation payable by Ash to Samiksha= 3,00,000 X =60,000
10
1
Compensation payable by Divya to Samiksha =3,00,000 x =730,000.
10

Adjustment of Reserves, Accumulated Profits and Losses through Partners' Capital Accounts,
i.e, When the existing balances are to be retained in the Books
The partners may decide that existing balances of Profit & Loss Account or Reserve be
continued to exist at the same amount in the Balance Sheet of the reconstituted firm.
However, the partners are entitled to their share in these balances of Profit & Loss
Account and reserves and also should bear their share in losses, if any.
Therefore, to give effect, an entry for the net effect of reserves, accumulated profits
and losses is passed since they were earned in the past, i.e., before the date of change
in profit-sharing ratio. The adjustment entry is passed through the Partners' Capital/
Current Accounts. The gained or sacrificed profit share of each partner is calculated
3.22 Double Entry Book
Keeping-CBSE X
dajustment entry for the amount is passed on the basis of gained or Sacrfices
profit share. This is, because at present, the partners are entitled to share
profits and losses in the old profit-sharing ratio whereas in future they will Such
CO Snare such reserves. profits and losses in the new proht-sharing ratio. be
For
reSeenrivteesd
Passing an adjustment entry, following steps are taken:
Step 1: Calculate the Net Effect of Reserves, Accumulated Profits and Losses.
srep 2: alculate Gained/Sacrificed Profit Share of each partner.
Step 3: Calculate share of Gaining Partner and Sacrificing Partner in the amount
in Step 1.
For Gaining Partner = Net Effect x Gained Profit Share determined
For Sacrificing Partner = Net Effect x Sacrificed Profit Share.
Step 4: Pass the following Adjusting Journal Entry:
In case of Positive Effect (Net Proft): Gaining Partners' Capital/Current* A/Cs
..Dr,
To Sacrificing Partners' Capital/Current" A/cs
In case of Negative Effect (Net Loss): Sacrifcing Partners' Capital/Current" A/cs .Dr.
To Gaining Partners' Capital/Current A/cs
*In case of Fixed Capitals.
Illustration 16.
Aan, Baan and Shaan are partners in a firm sharing profits in the ratio of 3:3:2The
decided to share profits equally w.e.f. 1st April, 2023. On that date, General Reserve had
credit balance of 72,000. Instead of distributing the General Reserve, it was decided to
record an adjustment entry giving effect due to the change in the profit-sharing ratio,
Pass Journal entry to give effect to the same.
Solution: JOURNAL
Date Particulars LLF. Dr. ) Cr.)
2023
April 1 Shaan's Capital A/c ...Dr. 6,000
To Aan's Capital AC 3,000
To Baan's Capital A/c 3,00
(Adjustment of General Reserve because of change in the proft-sharing ratio)

Working Note: Calculation of sacrificed/(gained) profit share of partrners due to change in profht-sharing ratio:
Aan Baan Shaan
(i) Old Profit Share 3/8 3/8 2/8
(iü) New Profit Share 1/3 1/3 1/3
(ii) Sacrificed/(Gained) Profit Share [(i) - ()) 1/24 (Sacrifice) -2/24 (Gain)
1/24 (Sacrifice)
fromtheir
Due to change in profit-sharing ratio, Shaan has gained 2/24th. Aan and Baan sacrificed 1/24th each
General
profit shares. Hencé, Capital Accounts of Aan and Baan are credited each by 1/24th of the balance in
Reserve, ie., 1/24 x?72,000 = *3,000 each and Shaan's Capital Account is debited by 6.000.
 Chapter 3. Change in Profit-Sharing Ratio Among the Existing Partners 3.23
Illustration 17.

Karim, Saleem and Rahim are sharing profits and losses in the ratio of 5 : 3:2 1neY
decide to share profits and losses in the ratio of 2:3:5 with effect from 1st April, 2023
They also decide to record the effect of the following without affecting their book values:
Book Values ()
(i) General Reseryve 1,50,000

(i) Investment Fluctuation Reserve 25,000

(ii) Workmen Compensation Reserve 50,000

(iv) Profit & Loss A/c (Cr.) 75,000

(v) Advertisement Suspense A/c (Dr.) 1,00,000

Pass an adjustment entry, assuming no liability is expected towards Workmen
Compensation Reserve and market value of investments is also equal to the book value.

Solution: Calculation of Net Effect of Accumulated Profits, Losses and Reserves:

General Reserve 1,50,000
Investment Fluctuation Reserve 25,000
Workmen Compensation Reserve 50,000
Profit & Loss A/c (Cr.) 75,000
3,00,000
Less: Advertisement Suspense A/c (Dr.) 1,00,000
Net Amount 2,00,000

Calculation of Sacrificedi(Gained) Profit Share of each Partner:

Karim Saleem Rahim

(i) Old Profit Share 5/10 3/10 2/10

(ii) New Profit Share 2/10 3/10 5/10
(ii) Sacrificed/(Gained) Profit Share |(0) - ()) 3/10 (Sacrifice) -3/10 (Gain)

Calculation of Share of sacrificing and gaining partner in the net amount of reserves and losses:
For Karim = 200,000 ×3/10 = 60,000; For Rahim = 2,00,000 x 3/10 = 60,000.
ADJUSTMENT ENTRY

Date Particulars LF. Dr. ) Cr. )

2023
April 1 Rahim's Capital A/C ...Dr. 60,000
To Karim's Capital A/c 60,000
(Adjustment made for net accumulated profts, losses and reserves)
 3.24 Double Entry Book Keeping-CBSE XIl
Illustration 18.
losses in the ratio
Nitin and Megha are partners in a firm sharing profits and 2 of
effect from 1st April, 2023, they decided to share profits and. losses equally. On :1. With
their Balance Sheet showed a debit balance of Profit & Loss Account of 1,50,000.that date,
Pass the necessary adjustment Journal entry in the books if the partners
Iroht and Loss Account balance (Dr) in the books of the reconstituted firm. to decide show
Solution: JOURNAL

Date L.E. Dr. ()

Particulars
2023
Cr.)
.Dr.
April 1 Nitin's Capital A/c 1,50,000 x1/6) 25,000
To Megha's Capital A/c R 1,50,000 x 1/6) 25,000
(Adjustment of Dr. Balance of Profit and Loss because of change in
cstprofit-sharing ratio)
Working Notes:
1. Calculation of Sacrifice and Gain:
Particulars Nitin Megha
A. Old Profit Share 2/3 1/3
B New Profit Share 1/2 1/2
Difference (A - B) 2/3- 1/2= 1/6 Sacrifice 1/3-1/2 =-1/6 Gain
2. Inthe given case, loss (Dr.Balance of Profit &Loss Account) is to be adjusted. So, Nitin (sacrificing partner)
will be debited and Megha (gaining partner) will be credited by 25,000 (1/6 of ? 1,50,000).
Calculation of Individual Partner's Gain or Sarifice due to change in Profit-sharing Ratio
Illustration 19.
Vinay, Naman and Prateek are partners sharing profits and losses in an agreed ratio. With
effect from lst April, 2023, they agreed to share profits equally. On that date, their Balance
Sheet showed:
(i) Profit & Loss A/c (Cr.) 1,75,000
(ii) Advertisement Suspense Account 25,000
Following Journal entry is recorded in the books to give effect to the adjustment for
accumulated profits, losses and reserve:
JOURNAL
Cr.)
Date Particulars LF. Dr. )

2023
1 Prateek's Capital A/c .Dr. 25,000
April 25,000
To Vinay's Capital A/c
Adiustment made for accumulated profits, losses and reserve)
profit-
Calculate each partner's gain or sacrifice due to change in profit-sharing ratio and old
sharing ratio.