Change in Profit sharing ratio of Partners Test

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Change in Profit sharing ratio of Partners Test - 6

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Weekly Quiz Competition

Question 1
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Which of the following item is not debited to the partners’ capital account?

A
Advertisement suspense

B
Loss on revaluation

C
Drawings

D
General Reserve

Solution

From the given items in the questions, General reserve is the only item which should not be debited to the partners’ capital account. General reserve will be credited to the partners in their old profit sharing ratio.
Question 2
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What will you do, when Investment (cost) is given ₹200000 and Investment fluctuation reserves is given ₹18000.

A
Transfer the Investments amount to Partners Capital account

B
Transfer the excess Investments Fluctuation Reserves to Revaluation account

C
Transfer the excess Investments Fluctuation Reserves to Profit and Loss account

D
Investment fluctuation reserve will be distributed

Solution

When there is no decrease in the value of investment, in such a case partners may distribute the investment fluctuation reserve in their old profit sharing ratio.
Question 3
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VN, MN and KN are partners sharing profits in the ratio of 5:3:2 respectively. They have decided to share future profits in the ratio of 3:5:2. Workmen compensation reserve given in the balance sheet is Rs.6,000. How much amount of workmen compensation reserve is to be adjustment in gain or sacrificing ratio?

A
1,000

B
600

C
1,200

D
900

Solution

Calculation of adjustment of amount of workmen compensation reserve:
Old Ratio 5:3:2
New Ratio 3:5:2
Sacrifice or Gain : VN : 5/10 – 3/10 = 2/10 Sacrifice
MN : 3/10 – 5/10 = 2/10 Gain
KN : 2/10 – 2/10 = No Sacrifice/No Gain
Question 4
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Which of the following can be distirbuted by the partners as a free reserve?

A
Employees Provident Fund

B
Taxation Reserve

C
Machinery Replacement Fund

D
Contingency Reserve

Solution

At the time of reconstitution of a partnership firm partners can distribute only free and accumulated reserves and profits. In the given question, only contingency reserve is a free reserve which partners can distribute in their old profit sharing ratio.
Question 5
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X, Y and Z are partners sharing profits equally. Credit balance of Profit and Loss account is given in the balance sheet Rs.6,000. Now they have decided to distribute profits in the ratio of 6:3:1. With what amount gainer will be debited for profit and loss account in an adjustment entry based on gain and sacrifice?

A
X and Y Debit with Rs.800 each

B
X’s Capital A/c Dr.1,600

C
Z’s Capital A/c Dr.1,600

D
Y’s Capital A/c Dr.1,600

Solution

Adjustment for the amount of profit and loss account:
X’s capital account is to be debited with Rs.1,600 i.e. 6,000 × 8/30 = 1,600
X = 1/3 – 6/10 = 8/30 Gain
Y = 1/3 – 3/10 = 1/30 Sacrifice
Z = 1/3 – 1/10 = 7/30 Sacrifice
Question 6
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Sudha, Pushpa and Sneh are partners in a firm sharing profit in the ratio of 3:3:2. They decided to share profits equally w.e.f April 1, 2003. On that date, the Profit and Loss account showed the credit balance of Rs. 24,000. Instead of closing the Profit and Loss account, it was decided to record an adjustment entry reflecting the change in the profit sharing ratio. Show that entry.

A
Pushpa Dr.2,000; Sudha and Sneh Cr.1,000 each

B
Sneh Dr.2,000; Sudha and Pushpa Cr.1,000 each

C
Sudha Dr.2,000; Sneh and Pushpa Cr.1,000 each

D
Sudha Dr.24,000; Sneh and Pushpa Cr.12,000 each

Solution

There is a gain of 2/24th to Sneh and Sudha. Pushpa will sacrifice 1/24th each of their share. Hence Sudha’s and Pushpa’s capital account should be credited each by 1/24th of the balance in profit and loss account, i.e. 1/24 × 24,000 = Rs. 1,000 each and Sneh’s capital account should be debited by Rs. 2,000.
Question 7
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X, Y and Z are partners in a firm sharing profits in 1 : 2 : 3 ratio. Their Balance Sheet as at 31.3.2003 showed a balance of Rs. 1,20,000 in General Reserve. From 1.4.2003, they will share profits equally. Give adjustment entry.

A
Dr. X and Cr. Z by Rs 60,000 each

B
Dr. X and Cr. Z by Rs 20,000 each

C
Dr. X and Cr. Z by Rs 40,000 each

D
Dr. X and Cr. Z by Rs 2,000 each

Solution

Adjustment of General Reserve at the time of change in profit sharing ratio:
Old Ratio = 1:2:3 and New Ratio 1:1:1
X = 1/6 – 1/3 = 1/6 Gain
Y = 2/6 – 1/3 = No Sacrifice/No Gain
Z = 3/6 – 1/3 = 1/6 Sacrifice
Question 8
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Revaluation Account will be debited when:

A
Value of fixed asset decreases

B
Value of fixed asset increases

C
Value of liabilities reduces

D
When provision for doubtful debts decreases

Solution

There are some rules for the preparation of Revaluation Account:
1. Increase in assets debit
2. Decrease in assets credit
3. Increase in liabilities credit
4. Decrease in liabilities debit
Question 9
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Which of the following is shown in the debit side of partners’ capital account?

A
Profit on revaluation

B
Profit and Loss Account (Cr.balance)

C
P/L Appropriation Account (Profit)

D
Loss on revaluation

Solution

Loss on revaluation should be debited to the partners’ capital account or partners’ current account. In this question profit on revaluation, profit as per profit and loss appropriation account and profit as per profit and loss account is given, all these items will take place in the credit side of partners capital account or partners current account.
Question 10
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On the reconstitution of a firm change in the value of assets is called ___

A
Reassessment of liabilities

B
Reassessment of assets

C
Revaluation of assets

D
Devaluation of assets

Solution

When reconstitution of a firm takes place, it is necessary to revalue the assets and re-assess the liabilities. The process of recording change in the value of assets and liabilities is called revaluation. Profit or loss calculated through revaluation is distributed among the partners in their profit sharing ratio.

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Re-Attempt Weekly Quiz Competition

Change in Profit sharing ratio of Partners Test - 6

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Change in Profit sharing ratio of Partners Test - 6

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SHARING IS CARING

Question 1

Advertisement suspense

Loss on revaluation

Drawings

General Reserve

Solution

Question 2

Transfer the Investments amount to Partners Capital account

Transfer the excess Investments Fluctuation Reserves to Revaluation account

Transfer the excess Investments Fluctuation Reserves to Profit and Loss account

Investment fluctuation reserve will be distributed

Solution

Question 3

1,000

600

1,200

900

Solution

Question 4

Employees Provident Fund

Taxation Reserve

Machinery Replacement Fund

Contingency Reserve

Solution

Question 5

X and Y Debit with Rs.800 each

X’s Capital A/c Dr.1,600

Z’s Capital A/c Dr.1,600

Y’s Capital A/c Dr.1,600

Solution

Question 6

Pushpa Dr.2,000; Sudha and Sneh Cr.1,000 each

Sneh Dr.2,000; Sudha and Pushpa Cr.1,000 each

Sudha Dr.2,000; Sneh and Pushpa Cr.1,000 each

Sudha Dr.24,000; Sneh and Pushpa Cr.12,000 each

Solution

Question 7

Dr. X and Cr. Z by Rs 60,000 each

Dr. X and Cr. Z by Rs 20,000 each

Dr. X and Cr. Z by Rs 40,000 each

Dr. X and Cr. Z by Rs 2,000 each

Solution

Question 8

Value of fixed asset decreases

Value of fixed asset increases

Value of liabilities reduces

When provision for doubtful debts decreases

Solution

Question 9

Profit on revaluation

Profit and Loss Account (Cr.balance)

P/L Appropriation Account (Profit)

Loss on revaluation

Solution

Question 10

Reassessment of liabilities

Reassessment of assets

Revaluation of assets

Devaluation of assets

Solution

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