Change in Profit Sharing Ratio of Partners Test

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Change in Profit Sharing Ratio of Partners Test - 3

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Question 1
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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

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Question 2
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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.

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Question 3
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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

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Question 4
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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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Question 5
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What adjustments are required when existing partners decide to change their profit sharing ratio:

A
Both Goodwill and Reserves and Accumulated profits

B
Reserves and Accumulated profits

C
Realisation Account

D
Goodwill

Solution

Change in profit sharing ratio may also necessitate adjustments in the partner’s capital accounts with respect to undistributed profits and reserves, revaluation of assets and reassessment of liabilities, etc. The valuation of goodwill of a firm, its treatment, adjustment regarding undistributed profits and reserves and revaluation of assets and liabilities due to change in the profit sharing ratio of the partners.

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Question 6
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Why do existing partners change their profit sharing ratio:

A
Due to Tax Policy of Government

B
Due active participation in management by a partner

C
Both Due to change in capital contribution and Due active participation in management by a partner

D
Due to change in capital contribution

Solution

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.

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Question 7
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The significance of calculating sacrificing ratio:

A
To determine the amount of compensation to be paid by new partner

B
To determine the amount of compensation to be paid by all partner

C
To determine the amount of compensation to be paid by gaining partner

D
To determine the amount of compensation to be paid by sacrificing partner

Solution

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.

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Question 8
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A, B and C are sharing profits and losses in the ratio 10:6:4 with effect from 01/04/2013 they decide to share profit and losses equally. Which partner has to sacrifice

A
B

B
All

C
A

D
C

Solution

Calculation of sacrifice or gain:

1.Old Ratio 10:6:4

2.New Ratio 1:1:1

3.A’s Sacrifice (old – new share) = 10/20-1/3 = 1/6

4.B is gainer (old – new share) = 6/20 - 1/3 = (-) 1/30

5.C is gainer (old – new share) = 4/20 - 1/3 = (-) 4/30

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Question 9
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X, Y and Z are sharing profits in the ratio of 50%; 40% and 10% respectively. Now, they have decided to share future profits equally. Identify the gainer partner.

A
Y is gainer

B
X is gainer

C
Z is gainer

D
Both X and Y are gainer

Solution

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

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Re-Attempt Weekly Quiz Competition

Change in Profit Sharing Ratio of Partners Test - 3

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Change in Profit Sharing Ratio of Partners Test - 3

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Rank

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SHARING IS CARING

Question 1

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 2

Z Rs.300

Z and X Rs.150 each

Y Rs.300

X Rs.300

Solution

Question 3

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 4

Retained Earnings

General Reserve

Contingency Reserve

Employees Provident Fund

Solution

Question 5

Both Goodwill and Reserves and Accumulated profits

Reserves and Accumulated profits

Realisation Account

Goodwill

Solution

Question 6

Due to Tax Policy of Government

Due active participation in management by a partner

Both Due to change in capital contribution and Due active participation in management by a partner

Due to change in capital contribution

Solution

Question 7

To determine the amount of compensation to be paid by new partner

To determine the amount of compensation to be paid by all partner

To determine the amount of compensation to be paid by gaining partner

To determine the amount of compensation to be paid by sacrificing partner

Solution

Question 8

B

All

A

C

Solution

Question 9

Y is gainer

X is gainer

Z is gainer

Both X and Y are gainer

Solution

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