Test: Change In Profit Sharing Ratio - 2 - Commerce MCQ

All accumulated profits, reserves, losses and fictitious assets will be distributed by the old partners in their old ratio at the time of reconstitution of partnership firm.

Sometimes old partners may change their existing profit sharing ratio without admitting a new partner or without retirement or death of a partner. The main reason of change in existing ratio is to make ratio favorable as per the contribution of partners’ capitals and to compensate a partner who is actively participating in the management of firm.

Whenever there is change in the existing profit sharing ratio, a gainer partner will compensate the sacrificing partner, for this purpose these steps should be followed by the partners:
1.Find out the Gainer due to change in existing profit sharing ratio
2.Find out the Sacrificing partner
3.Now, Debit the gainer partner and credit the sacrificing partner

Sacrificing ratio tells us the amount of sacrifice made by the partner. That’s why sacrificing partner is credited while prepapring journl entries so that gainer partner may compensate the sacrificing partner.

In this case adjustment will be made as follows:
1.Goodwill of the firm Rs.30,000 (given)
2.A’s Gain share in goodwill 30,000 × 1/6 = 5,000
3.B’s Sacrifice share of goodwill 30,000 × 1/6 = 5,000
Now, Debit the gainer and credit the sacrificing partner.

Adjustment of partners capital accounts:
1.X will be credited because of his sacrifice 5/30
2.Y will be debited because of his gain 1/30
3.Z will be debited because of his gain 4/30
Now, Y and Z debit and X will be credited.

Calculation of sacrifice or gain:
1.Old Ratio 10:6:4
2.New Ratio 1:1:1
3.A’s Sacrifice (old – new share) 
4.B is gainer (old – new share)
5.C is gainer (old – new share)

Calculation of sacrifice or gain:
Formula = Old Share – New Share
Vinod = 7/10 – 6/10 = 1/10 Sacrifice
Pandey = 3/10 – 4/10 = -1/10 Gain

Calculation of sacrificing share:
Formula = Old ratio – New ratio
VK = 1/3 – 5/10 = 5/30 Gain
Mk = 1/3 – 3/10 = 1/30 Sacrifice
JK = 1/3 – 2/10 = 4/30 Sacrifice

Calculation of gain or sacrifice:
Formula : Old Share – New Share 
X = 5/10 – 1/3 = 1/6 Sacrifice 
Y = 4/10 – 1/3 = 1/15 Sacrifice
Z = 1/10 - 1/3 = 7/30 Gain

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

Calculation of gain or sacrifice:
Formula : Old Share – New Share 
X = 4/9 – 3/5 = 7/45 Gain 
Y = 3/9 – 1/5 = 6/45 Sacrifice
Z = 2/9 - 1/5 = 1/45 Sacrifice

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

Adjustment of loss at the time of change in profit sharing ratio:
Old Ratio = 8:4:2 OR 4:2:1
New Ratio = 4:2:2 OR 2:1:1
Formula = Old – New ratio
X’s Sacrifice 2/28; Y’s Sacrifice 1/28 and Z’s Gain 3/28.

Adjustment of goodwill amount at the time of change in profit sharing ratio:
Old Ratio = 3:2
New Ratio = 1:1
Ram’s Sacrifice = 3/5 – 1/2 = 1/15
Rohit’s Gain = 2/5 – 1/2 = 1/15
Rohit’s Gain of goodwill amount = 30,000 × 1/10 = 3,000

Calculation of gain or sacrificing ratio:
Formula : Old Share – New Share 
A = 5/10 – 1/3 = 5/30 Sacrifice 
B = 3/10 – 1/3 = 1/30 Gain
C = 2/10 - 1/3 = 4/30 Gain

Adjutment of goodwill amount at the time of change in profit sharing ratio:
Old Ratio = 3:2 and New Ratio 1:1
Geeta’s Sacrifice = 3/5 – 1/2 = 1/10
Sita’s Gain = 2/5 – 1/2 = 1/10 
Share in goodwill = 50,000 × 1/10 = 5,000