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P, Q and R are on partnership term sharing profits and losses in the ratio 6:3:1. They decided to take S into partnership with effect from 1st April 2017. The new profit sharing ratio between P, Q, R, and S will be 3:3:3:1. They also decided to record the effect of the following without affecting the books figures (after the required adjustment from workmen compensation reserve and investment fluctuation reserve) by passing single adjustment entry. General reserve - 1,20,000 Contingent reserve -20,000 Profit and Loss A/c (Cr) -60,000 Advertisement suspense A/c -50,000 Workmen compensation reserve - 20,000 Investment fluctuation reserve -10,000 Additional Information a) Claim on account of Workmen compensation reserve is 10,000 b) Book Value of investment is 50,000(market value 45,000)
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P, Q and R are on partnership term sharing profits and losses in the r...
Adjustment Entry and New Profit Sharing Ratio

Adjustment Entry:

To adjust the effect of the following without affecting the books figures, a single adjustment entry should be passed:

Particulars Amount
General reserve 1,20,000
Contingent reserve 20,000
Profit and Loss A/c (Cr) 60,000
Advertisement suspense A/c 50,000
To Workmen compensation reserve 10,000
To Investment fluctuation reserve 5,000 (50,000-45,000)

New Profit Sharing Ratio:

The new profit sharing ratio between P, Q, R, and S will be 3:3:3:1 after taking S into partnership with effect from 1st April 2017.

Sacrificing Ratio:

The sacrificing ratio is the ratio in which the existing partners’ share in the profits is reduced due to the admission of a new partner.

Sacrificing ratio of P, Q, and R = 6:3:1
Total sacrificing ratio = 6+3+1 = 10
Sacrificing ratio of P, Q, and R in new ratio = 3:3:3
Total profit sharing ratio in new ratio = 3+3+3+1 = 10

Thus, the sacrificing ratio of P, Q, and R will be:
P = (6/10) x (3/3) = 0.6
Q = (3/10) x (3/3) = 0.9
R = (1/10) x (3/3) = 0.3

Calculation of New Share of Profits:

After calculating the sacrificing ratio, we can calculate the new share of profits of P, Q, R, and S as follows:

Old profit sharing ratio of P, Q, R = 6:3:1
New profit sharing ratio of P, Q, R, and S = 3:3:3:1

New share of P = (0.6 x Total profit) / 9
New share of Q = (0.9 x Total profit) / 9
New share of R = (0.3 x Total profit) / 9
New share of S = (1 x Total profit) / 9

Total profit = Sum of new share of P, Q, R, and S

Note: The above calculation of profit sharing is based on the assumption that there are no other adjustments required.
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P, Q and R are on partnership term sharing profits and losses in the ratio 6:3:1. They decided to take S into partnership with effect from 1st April 2017. The new profit sharing ratio between P, Q, R, and S will be 3:3:3:1. They also decided to record the effect of the following without affecting the books figures (after the required adjustment from workmen compensation reserve and investment fluctuation reserve) by passing single adjustment entry. General reserve - 1,20,000 Contingent reserve -20,000 Profit and Loss A/c (Cr) -60,000 Advertisement suspense A/c -50,000 Workmen compensation reserve - 20,000 Investment fluctuation reserve -10,000 Additional Information a) Claim on account of Workmen compensation reserve is 10,000 b) Book Value of investment is 50,000(market value 45,000) Related: New Profit Sharing and Sacrificing Ratio (Part A)?
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P, Q and R are on partnership term sharing profits and losses in the ratio 6:3:1. They decided to take S into partnership with effect from 1st April 2017. The new profit sharing ratio between P, Q, R, and S will be 3:3:3:1. They also decided to record the effect of the following without affecting the books figures (after the required adjustment from workmen compensation reserve and investment fluctuation reserve) by passing single adjustment entry. General reserve - 1,20,000 Contingent reserve -20,000 Profit and Loss A/c (Cr) -60,000 Advertisement suspense A/c -50,000 Workmen compensation reserve - 20,000 Investment fluctuation reserve -10,000 Additional Information a) Claim on account of Workmen compensation reserve is 10,000 b) Book Value of investment is 50,000(market value 45,000) Related: New Profit Sharing and Sacrificing Ratio (Part A)? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about P, Q and R are on partnership term sharing profits and losses in the ratio 6:3:1. They decided to take S into partnership with effect from 1st April 2017. The new profit sharing ratio between P, Q, R, and S will be 3:3:3:1. They also decided to record the effect of the following without affecting the books figures (after the required adjustment from workmen compensation reserve and investment fluctuation reserve) by passing single adjustment entry. General reserve - 1,20,000 Contingent reserve -20,000 Profit and Loss A/c (Cr) -60,000 Advertisement suspense A/c -50,000 Workmen compensation reserve - 20,000 Investment fluctuation reserve -10,000 Additional Information a) Claim on account of Workmen compensation reserve is 10,000 b) Book Value of investment is 50,000(market value 45,000) Related: New Profit Sharing and Sacrificing Ratio (Part A)? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for P, Q and R are on partnership term sharing profits and losses in the ratio 6:3:1. They decided to take S into partnership with effect from 1st April 2017. The new profit sharing ratio between P, Q, R, and S will be 3:3:3:1. They also decided to record the effect of the following without affecting the books figures (after the required adjustment from workmen compensation reserve and investment fluctuation reserve) by passing single adjustment entry. General reserve - 1,20,000 Contingent reserve -20,000 Profit and Loss A/c (Cr) -60,000 Advertisement suspense A/c -50,000 Workmen compensation reserve - 20,000 Investment fluctuation reserve -10,000 Additional Information a) Claim on account of Workmen compensation reserve is 10,000 b) Book Value of investment is 50,000(market value 45,000) Related: New Profit Sharing and Sacrificing Ratio (Part A)?.
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