Change in Profit sharing ratio of Partners Test

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Change in Profit sharing ratio of Partners Test - 12

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SHARING IS CARING

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Weekly Quiz Competition

Question 1
1 / -0

Which of the following is transferred to the partners capital account?

A
General Reserve

B
Creditors

C
Loan (short term)

D
Land and Building

Solution

General Reserve given in the balance sheet will be credited to the old partners in their old profit sharing ratio. While other items i.e. land and building, loan and creditors are shown in the balance sheet and any change in their value will be shown in the revaluation account.
Question 2
1 / -0

________ ratio in which the partners share all the accumulated profits, reserves, losses and fictitious assets in case of reconstitution of partnership firm

A
New Ratio

B
Sacrificing Ratio

C
Gaining Ratio

D
Old Ratio

Solution

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.
Question 3
1 / -0

L, M and N are sharing profits and losses in the ratio of 5:3:2. If they all decide to share equally. Then who will sacrifice his share

A
C

B
B

C
A

D
No one will sacrifice

Solution

Calculation of Sacrificing ratio:

1.A = 5/10 – 1/3 = (+)5/30 Sacrifice

2.B = 3/10 – 1/3 = (-)1/30 Gain; - sign indicate Gain

3.C = 2/10 – 1/3 = (-)4/30 Gain; - sign indicate Gain

In the above question only A is sacrificing.
Question 4
1 / -0

Ram and Rohit shared profit and loss in the ratio of 3:2. With effect from 01/04/2012 they agreed to share profits equally. The goodwill of the firm was valued at 30000. Which partner account should be debited in this case for the adjustment

A
Ram Rs.3,000

B
Rohit Rs.30,000

C
Rohit Rs.3,000

D
Both Rohit Rs.3,000 and Ram Rs.3,000 1,500 each

Solution

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
Question 5
1 / -0

E, F and G are partners sharing profits in 7 : 6 : 5 ratio. Their fixed capitals are Rs, 70,000, Rs. 40,000 and Rs. 80,000 respectively. It is now decided that the total capital of the firm should be Rs. 3,60,000 and should be in the profit sharing ratio of the partners. Calculate the amount of capital to be contributed by the individual partners.

A
E will contribute Rs 70,000; F 20,000 and G Rs 80,000

B
E will contribute Rs 20,000; F 80,000 and G Rs 70,000

C
E will contribute Rs 80,000; F 70,000 and G Rs 20,000

D
E will contribute Rs 70,000; F 80,000 and G Rs 20,000

Solution

Adjutsment of capital of partners:

Old Capitals = 70,000; 40,000 and 80,000

New Capitals = 1,40,000; 1,20,000 and 1,00,000 (3,60,000 in 7:6:5 ratio)

E’s capital A/c 70,000

F’s capital A/c 80,000

G’s capital A/c 20,000
Question 6
1 / -0

How sacrificing ratio is calculated

A
Sacrificing ratio = Old ratio – Gaining ratio

B
Sacrificing ratio = New ratio – Old ratio

C
Sacrificing ratio = Old ratio + New ratio

D
Sacrificing ratio = Old share – New share

Solution

1. Mainly sacrificing ratio is calculated at the time of Change in existing profit sharing ratio and admission of new partner.

2. Total of each old partner's Sacrifice will be equal to new ratio of new admitted partner or a gainer partner in case of change in existing profit sharing ratio.

3. Goodwill will be adjusted at the time of admission of a partner in sacrifice ratio.

4. Formula : Old share – New share
Question 7
1 / -0

X, Y and Z are partners sharing profits in the ratio of 8/14; 4/14 and 2/14. Profit and Loss account shows a loss of Rs.2,800. Now partners have decided to share future profits in the ratio of 4:2:2. Who is the gainer and with what amount?

A
Z Rs.300

B
Z and X Rs.150 each

C
Y Rs.300

D
X Rs.300

Solution

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.
Question 8
1 / -0

The circumstances when change in profit sharing ratio is needed:

A
When existing partner’s decide

B
At the time of admission/retirement/death

C
To distribute the revaluation profit

D
Both When existing partner’s decide and At the time of admission/retirement/death

Solution

Change in profit sharing ratio is essential in the following circumstances:

1. When existing partners have decided to change their existing profit sharing ratio to new ratio.

2. When a new partner is admitted

3. When a partner gets retirement from the firm

4. At the time of death of a partner
Question 9
1 / -0

When there is a change in the profit sharing ratio, what entry will be passed to make adjustment for goodwill in case the partner's capital are fixed:

A

B

C

D

Solution

As we know, in case of fixed capital method, all adjustments has to be done through current account and capital accounts remains fixed. In case of charge of profit sharing ratio, no actual cash will be brought or withdraw by partners as a premium for goodwill for the loss or gain in profit sharing ratio. Therefore, adjustments has to be done through capital /current accounts. Hence, gaining partner's current account will be debited and sacrificing partner's current account will be credited.
Question 10
1 / -0

Which of the following is not transferred to partners capital account?

A
Retained Earnings

B
General Reserve

C
Contingency Reserve

D
Employees Provident Fund

Solution

Employees provident fund is not a free reserve. Partners cannot distribute employees provident fund. Partners can distribute only free reserves and accumulated profits at the time of reconstitution of a partnership firm. In the above question partners will distribute all reserves and retained earnings except employees provident fund.

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Change in Profit sharing ratio of Partners Test - 12

Result

Change in Profit sharing ratio of Partners Test - 12

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SHARING IS CARING

Question 1

General Reserve

Creditors

Loan (short term)

Land and Building

Solution

Question 2

New Ratio

Sacrificing Ratio

Gaining Ratio

Old Ratio

Solution

Question 3

C

B

A

No one will sacrifice

Solution

Question 4

Ram Rs.3,000

Rohit Rs.30,000

Rohit Rs.3,000

Both Rohit Rs.3,000 and Ram Rs.3,000 1,500 each

Solution

Question 5

E will contribute Rs 70,000; F 20,000 and G Rs 80,000

E will contribute Rs 20,000; F 80,000 and G Rs 70,000

E will contribute Rs 80,000; F 70,000 and G Rs 20,000

E will contribute Rs 70,000; F 80,000 and G Rs 20,000

Solution

Question 6

Sacrificing ratio = Old ratio – Gaining ratio

Sacrificing ratio = New ratio – Old ratio

Sacrificing ratio = Old ratio + New ratio

Sacrificing ratio = Old share – New share

Solution

Question 7

Z Rs.300

Z and X Rs.150 each

Y Rs.300

X Rs.300

Solution

Question 8

When existing partner’s decide

At the time of admission/retirement/death

To distribute the revaluation profit

Both When existing partner’s decide and At the time of admission/retirement/death

Solution

Question 9

Solution

Question 10

Retained Earnings

General Reserve

Contingency Reserve

Employees Provident Fund

Solution

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