Hierarchy of management that covers different levels of management
Change in profit sharing ratio
1. By Geeta Handa
Partnership-Change in Profit-Sharing Ratio
Among Existing Partners
Geeta Handa
Treatment of Accumulated Profits and General Reserves
2. Geeta Handa
PGT Accountancy
• 20 years experience of teaching
accountancy.
• 14 years experience of checking
accountancy papers of CBSE
• Worked as examiner for conducting
practical exam of accountancy.
geet7handa@gmail.com Geeta Handa
3. Example Amit, Sanjay and Naman are partners sharing profits and losses in
the ratio 5 : 3 : 2 Their Balance Sheet as at 31st March 2020 stood as :
Liabilities Rs. Assets Rs.
Capital A/cs : Sundry Assets 6,90,000
Amit 2,10,000
Sanjay 1,50,000
Naman 1,20,000 4,80,000
Profit & Loss A/c 60,000
General Reserve 1,50,000
6,90,000 6,90,000
Partners decided with effect from 1st April ,2020, they will share profits and losses equally.
4. Treatment of Profits & General Reserves
Distribute the Profits & Reserves
Option : 1
Option : 2
Don’t Distribute the Profits & Reserves
5. Partners Want To Distribute
The Profits & General Reserves
CASE : 1
6. Total Amount To Be Distributed
Profit & Loss A/c ………………. = 60,000
+ General Reserves………………. = 1,50,000
Total Amount to be Distributed = 2,10,000
7. Division of Profits & General Reserves Among Partners
Partners Amit Sanjay Naman
Old Share
( 5 : 3 : 2)
5/10 3/10 2/10
Proportionate
Amount 2,10,000 X
𝟓
𝟏𝟎
2,10,000 X
𝟑
𝟏𝟎
2,10,000 X
𝟐
𝟏𝟎
= Rs.1,05,000 = Rs.63,000 = Rs.42,000
8. Journal Entry
Date Particulars L.
F
Dr. ( Rs.). Cr. (Rs. )
Profit & Loss A/c Dr.
General Reserves A/c Dr.
To Amit’s Capital A/c
To Sanjay’s Capital A/c
To Naman’s Capital A/c
( Being Profits & Reserves
distributed in old Profit Ratio )
60,000
1,50,000
1,05,000
63,000
42,000
9. Partners’ Capital in Reconstituted firm
Amit’s 2,10,000 + 1,05,000 = 3,15,000
Sanjay’s 1,50,000 + 63,000 = 2,13,000
Naman’s 1,20,000 + 42,000 = 1,62,000
Total Capital of New/Reconstituted Firm = 6,90,000
10. Balance Sheet of Reconstituted Firm
as at 1st April 2020
Liabilities Rs. Assets Rs.
Capital A/cs : Sundry Assets 6,90,000
Amit 3,15,000
Sanjay 2,13,000
Naman 1,62,000 6,90,000
6,90,000 6,90,000
11. Partners Don’t Want To Distribute
The Profits & General Reserves
OR
Want to Retain The Profits & General
Reserves in The New Balance Sheet
CASE : 2
12. Proportionate Amount to be Adjusted:
Partners Amit Sanjay Naman
Division of 2,10,000
in Old Ratio 5 : 3 : 2 1,05,000 63,000 42,000
Division of 2,10,000
in New Ratio 1 : 1 : 1 70,000 70,000 70,000
= Rs.35,000
Sacrifice
= Rs.7,000
Gain
= Rs.28,000
Gain
14. Adjustment Entry
Date Particulars L.
F
Dr. ( Rs.). Cr. (Rs. )
Sanjay’s Capital A/c Dr.
Naman’s Capital A/c Dr.
To Amit’s Capital A/c
( Being Profits & Reserves
adjusted due to change in Ratio)
7,000
28,000
35,000
15. Partners’ Capital in Reconstituted firm
Amit’s 2,10,000 + 35,000 = 2,45,000
Sanjay’s 1,50,000 ─ 7,000 = 1,43,000
Naman’s 1,20,000 ─ 28,000 = 92,000
Total Capital of New/Reconstituted Firm = 4,80,000
16. Balance Sheet of Reconstituted Firm
as at 1st April 2020
Liabilities Rs. Assets Rs.
Capital A/cs : Sundry Assets 6,90,000
Amit 2,45,000
Sanjay 1,43,000
Naman 92,000 4,80,000
Profit & Loss A/c 60,000
General Reserve 1,50,000
6,90,000 6,90,000
17. Hit the Like Button
Subscribe
Mail Your Doubts or Suggestions
at
geet7handa@gmail.com
Geeta Handa