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Change in Profit sharing ratio of Partners Class 12 Accountancy Extra Questions

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Change in Profit sharing ratio of Partners Class 12 Accountancy Extra Questions. myCBSEguide has just released Chapter Wise Question Answers for class 12 Accountancy. There chapter wise Practice Questions with complete solutions are available for download in myCBSEguide website and mobile app. These test papers with solution are prepared by our team of expert teachers who are teaching grade in CBSE schools for years. There are around 4-5 set of solved Accountancy Extra questions from each and every chapter. The students will not miss any concept in these Chapter wise question that are specially designed to tackle Exam. We have taken care of every single concept given in CBSE Class 12 Accountancy syllabus and questions are framed as per the latest marking scheme and blue print issued by CBSE for class 12.

CBSE Class 12 Accountancy Extra Questions

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Practice Questions for Class 12 Accountancy

Ch-3 Change in Profit sharing ratio of Partners

  1. Annual profit shown by a business is Rs.20,000. Normal rate of return 10%. Total assets of the business firm Rs.2,40,000 and liabilities Rs.80,000. Value of Goodwill will be:
    1. Rs.40,000
    2. Rs.30,000
    3. Rs.20,000
    4. No Goodwill of Business
  2. The partner whose share has increased as a result of change is called
    1. Gaining partner
    2. Sacrificing partner
    3. Sacrificing ratio
    4. Gaining ratio
  3. AK, BK and CK are sharing profits in the ratio of 2:1:1. They have decided to share future profits in the ratio of 3:2:1. Find out the gainer partner.
    1. Both AK is the gainer partner and CK is the gainer partner
    2. CK is the gainer partner
    3. BK is the gainer partner
    4. AK is the gainer partner
  4. If Assets are increasing but liabilities decreasing; in such a case Revaluation A/c will show_____
    1. Do not prepare Revaluation A/c
    2. Neither Gain or Loss
    3. Profit
    4. Net loss
  5. A, B and C are partners sharing profits in the ratio of capitals (old 5:3:2 and new 2:3:5).Their capital after adjustment in new capital ratio are ` 20,000, ` 30000, ` 50000. Who will bring the amount of actual cash for adjustment?
    1. None of these
    2. C
    3. B
    4. A
  6. P and Q are sharing profit and losses equally .With effects from current year they decided to share profits in the ratio of 4:3.Calculate individual partner’s gain and Sacrifice
    1. P gains 1/12th share and Q sacrifices 1/14th share
    2. P gains 1/14th share and Q sacrifices 1/14th share
    3. P gains 1/10th share and Q sacrifices 1/14th share
    4. P gains 1/15th share and Q sacrifices 1/14th share
  7. State any two occasions on which a firm can be reconstituted.
  8. What is meant by change in Profit-Sharing Ratio?
  9. What do you understand by New Profit-Sharing Ratio?
  10. Define Investment Fluctuation Reserve.
  11. A and B are sharing profits and losses equally. With effect from 1st April, 2019, they agree to share profits in the ratio of 4 : 3. Calculate the individual partner’s gain or sacrifice due to the change in ratio.

  12. 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.

  13. X and Y are partners in a firm sharing profits in the ratio of 3:2. They decided to share future profits equally. On the date of change in the profit-sharing ratio, the Profit and Loss Account showed a debit balance of Rs 50,000. Pass the necessary Journal entry for the distribution of the balance in the Profit and Loss Account immediately before the change in the profit-sharing ratio.
  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 2,40,000.
    Pass necessary journal entry for the treatment of goodwill on change in the profit sharing ratio of Anant, Gulab and Khushbu.

  15. Ram, Shyam and Hari were in partnership sharing profits in the ratio of 3 : 2 : 1. The Balance Sheet as at 31.3.2013 was as follows :

    BALANCE SHEET
    as at 31.3.2013

    Liabilities (Rs) Assets (Rs)
    Bills Payable 20,000 Cash 40,000
    Creditors 20,000 Bills Receivable 5,000
    General Reserve 30,000 Debtors 15,000
    Capitals Stock 50,000
    Ram 50,000 Furniture 20,000
    Shyam 30,000 Machinery 30,000
    Hari 25,000 1,05,000 Goodwill 15,000
    1,75,000 1,75,000

    On 1.4.2013 partners decided to share profits equally. For this purpose it was further agreed that.

    1. Goodwill of the firm should be valued at Rs 30,000.
    2. Furniture and Machinery is to be revalued at Rs 25,000 and Rs 35,000 respectively.
    3. Value of Stock is to be reduced by Rs 4,000.

    You are required to give necessary journal entries to give effect to the above arrangement and prepare Revaluation Account, Partners’ Capital Accounts and Balance Sheet of the firm after reconstitution.

Ch-3 Change in Profit sharing ratio of Partners

Answer

    1. Rs.40,000, Explanation: Follow these steps to calculate the value of goodwill:
      1. Calculation of Capital Employed : 2,40,000 – 80,000 = 1,60,000
      2. Normal Profit = 1,60,000 × 10/100 = 16,000
      3. Super Profit = 20,000 – 16,000 = 4,000
      4. Goodwill = 4,000 × 100/10 = 40,000
    1. Gaining partner, Explanation: The partner who is getting more because of change in profit sharing ratio is called a gainer partner. That is why gainer partner is debited and sacrificing partner is credited while adjustment is made for goodwill or reserves and profits etc.
    1. BK is the gainer partner, Explanation: Calculation of gain or sacrifice: Formula : Old Share – New Share
      AK = 2/4 – 3/6 = No Sacrifice/ No Gain
      BK = 1/4 – 2/6 = 1/12 Gain
      CK = 1/4 – 1/6 = 1/12 Sacrifice
    1. Profit, Explanation: Increase in assets will be recorded in the credit side of revaluation account and decrease in liabilities will also be recorded in the revaluation account credit side. In both cases, there will be increase in profit, hence, revaluation account will show profit.
    1. C, Explanation: Adjustment of amount shall be made as follows:
      1. Total Capital = 20,000 + 30,000 + 50,000 = 1,00,000
      2. Capitals before adjustments were : 50,000; 30,000 and 20,000 (5:3:2)
      3. After adjustment = Rs.20,000, 30000,and 50000 (2:3:5)
      4. C will bring amount = old capital 50,000 – New capital 20,000 = 30,000
    1. P gains 1/14th share and Q sacrifices 1/14th share
      Explanation: Calculation of gain or sacrifice:
      Formula: Old Share – New Share
      P = 1/2 – 4/7 = 1/14 Gain
      Q = 1/2 – 3/7 = 1/14 Sacrifice
  2. A firm can be reconstituted on the following occasions (any two)
    1. When there is a change in the profit-sharing ratio of existing partners
    2. Admission of a new partner
    3. Death of partner
    4. Amalgamation of two or more partnership firms
    5. Retirenment of existing partner
  3. A change in profit-sharing ratio among partners means sharing the profits or losses in a new ratio in place of the old ratio. It implies the purchase of share of profit by one partner from another partner. It is called reconstitution of the existing partnership firm.
  4. New Profit-Sharing Ratio is the ratio in which all the partners, including new or incoming partner, will share future profits and losses of the firm.
  5. Investment fluctuation reserve is a reserve set aside out of profit to meet fall in the market value of the investment.
  6. Calculation of gain or sacrifice due to the change in ratio:
    Sacrifice = Old Ratio – New Ratio
    A = 1/2 – 4/7 = (7 – 8)/14 = -1/14 (Gain)
    B = 1/2 – 3/7 = (7 – 6)/14 = 1/14 (Sacrifice)
  7. Adjusting Journal Entry
    Date Particulars L.F. Dr. Cr.
    Z’s Capital Account (7,600 ×× 1/10) Dr. 760
    To X’s Capital Account 760
    (Being revaluation of assets and liabilities adjusted)

    Working Note: Old Ratio of X, Y and Z = 5 : 3 : 2, and their New Ratio = 4 : 3 : 3
    X = 4/10 – 5/10 = -1/10 (Sacrifice)
    Y = 3/10 – 3/10 = 0
    Z= 3/10 – 2/10 = 1/10 (Gain)

    Calculations for Net Increase/Decrease

    Items Book Value in Rs. Revised Value in Rs. Increase/Decrease in Rs.
    Investments 22,000 25,000 3,000
    Plant and Machinery 25,000 20,000 -5,000
    Land and Building 40,000 50,000 10,000
    Outstanding Expenses 5,600 6,000 -400
    Sundry Debtors 60,000 50,000 -10,000
    Trade Creditors 70,000 60,000 10,000
    Increase = 7,600
  8. Journal

    Date Particulars L.F. Dr.(Rs) Cr.(Rs)
    X’s Capital A/c Dr. 30,000
    Y’s Capital A/c Dr. 20,000
    To Profit and loss A/c
    (Being the undistributed loss transferred to the Capital Accounts of the Partners on change in the profit-sharing ratio)    		 50,000

    Note: At the time of change in profit sharing ratio, reserves and accumulated profits and losses exist in the books of the firm will be distributed in their old profit sharing ratio.

  9. JOURNAL
    Date Particulars LF Amount (Dr) Amount Cr
    2014 Apr 1 Gulab’s Capital A/c Dr 8,000
    Khushbu’s Capital A/c Dr 32,000
    To Anant’s Capital A/c
    (Being the adjustment of goodwill among partners on the change in profit-sharing ratio)    		 40,000

    Working Note

    1. Calculation of Sacrifice/gain of each partner Due to Change in Profit Sharing ratio of Partners
      Sacrificing/(Gaining) Share = Old Share – New Share
      Anant’s Sacrific/(Gaun) =510−13=15−1030=530=510−13=15−1030=530 Sacrifice
      Gulab’s Sacrific/Gain) =310−13=9−1030=(130)=310−13=9−1030=(130)Gain
      Khushbu’s Sacrifice/(Gain) =210−13=6−1030=(430)=210−13=6−1030=(430)Gain
    2. Calculation of Share of Goodwill
      Anant =2,40,000×530=Rs.40,000=2,40,000×530=Rs.40,000
      Gulab =2,40,000×130=Rs.8,000=2,40,000×130=Rs.8,000
      Khushbu =240,000×430=Rs.32,000=240,000×430=Rs.32,000
    3. Gulab and Khushbu have gained, so they will be debited by 8,000 and 32,000 respectively and Anant has sacrificed so he will be credited by 40,000
  10. In the Books of Ram, Shyam and Hari
    Journal

    Date Particulars L.F. Dr.(Rs) Cr.(Rs)
    2013 April 1 Hari’s Capital A/c Dr. 5,000
    To Ram’s Capital A/c
    (Being compensation given by Hari due to change in profit sharing ratio)    		 5,000
    April 1 Ram’s Capital A/c Dr. 7,500
    Shyam’s Capital A/c Dr. 5,000
    Hari’s Capital A/c Dr. 2,500
    To Goodwill A/c
    (Being old goodwill written off between old partners in their old ratio)    		 Dr. 15,000
    April 1 General Reserve A/c Dr. 30,000
    To Ram’s Capital A/c 15,000
    To Shyam’s Capital A/c 10,000
    To Hari’s Capital A/c
    ((Being general reserve distributed among all partners in their old ratio)    		 5,000
    April 1 Machinery A/c Dr. 5,000
    Furniture A/c Dr. 5,000
    To Revaluation A/c
    (Being increase in value of assets recorded)    		 10,000
    April 1 Revaluation A/c Dr. 4,000
    To Stock A/c
    (Being decrease in value of assets recorded)    		 4,000
    April 1 Revaluation A/c Dr. 6,000
    To Ram’s Capital A/c 3,000
    To Shyam’s Capital A/c 2,000
    To Hari’s Capital A/c
    (Being revaluation profits distributed among all partners in their old ratio)    		 1,000

    Revaluation Account

    Dr. Cr.
    Particulars (Rs) Particulars (Rs)
    To Stock A/c 4,000 By Machinery A/c 5,000
    To Profit transferred to: By Furniture A/c 5,000
    Ram’s Capital A/c 3,000
    Shyam’s Capital A/c 2,000
    Hari’s Capital A/c 1,000 6,000
    10,000 10,000

    Partner’s Capital Account

    Dr. Cr.
    Particulars Ram(Rs) Shyam(Rs) Hari(Rs) Particulars Ram(Rs) Shyam(Rs) Hari(Rs)
    To Goodwill A/c 7,500 5,000 2,500 By Balance b/d 50,000 30,000 25,000
    To Ram’s Capital A/c — — 5,000 By General Reserve A/c 15,000 10,000 5,000
    To Balance c/d 65,500 37,000 23,500 By Hari’s Capital A/c 5,000 — —
    By Revaluation A/c
    (Profits)    		 3,000 2,000 1,000
    72,000 42,000 31,000 73,000 42,000 31,000
    By Balance b/d 65,500 37,000 23,500

    BALANCE SHEET
    as at 1.4.2013

    Liabilities (Rs) Assets (Rs)
    Bills Payable 20,000 Cash 40,000
    Creditors 20,000 Bills Receivable 5,000
    Capitals Debtors 15,000
    Ram 65,500 Stock 46,000
    Shyam 37,000 Furniture 25,000
    Hari 23,500 1,26,000 Machinery 35,000
    1,66,000 1,66,000

    Working notes:Calculation of partners’ gain or sacrifice
    Sacrificing Ratio = Old Ratio – New Ratio
    Ram’s gain/sacrifice =36−13=1636−13=16 (sacrifice)
    Shyam’s gain/sacrifice = 26−1326−13 = Nil
    Hari’s gain/sacrifice = 16−13=(−)1616−13=(−)16(gain) Note:

    1. When Revaluation account is prepared, assets and liabilities appear in the balance sheet of the reconstituted firm at their revised (changed) values.
    2. Reconstitution of the firm results in a change in the capital of partners and in the value of assets and amount of liabilities. This shall also require preparation of balance sheet of the new firm.
    3. Sacrifing ratio is the ratio in which one or more partners of the firm sacrifice their share of profits in favour of one or more partners of the firm.
    4. 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 in their old profit sharing ratio.

Class 12 Accountancy Chapter Wise Practice Test

  1. FS of Non profit Organisation
  2. Fundamentals of partnership and Goodwill
  3. Change in Profit sharing ratio of Partners
  4. Admission of a Partner
  5. Retirement or Death of a partner
  6. Dissolution of Partnership
  7. Accounting for share Capital
  8. Accounting for Debentures
  9. Financial Statements and Analysis
  10. Statement Analysis Tools and Accounting Ratios
  11. Cash Flow Statement

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