GSEB Class 12 Accounts Solutions Chapter 4 Reconstruction of Partnership

GSEB Class 12 Accounts Reconstruction Of Partnership Text Book Questions And Answers

 

Question 1.Select appropriate option for each question :
(1) At the time of the reconstruction of a partnership firm ............... is prepared.
(A) Trading account
(B) Revaluation account
(C) Realization account
(D) Profit-loss appropriation account
Answer: (B) Revaluation account
In simple words: When a partnership firm undergoes reconstruction, a Revaluation Account is prepared to record the changes in the values of assets and liabilities.

🎯 Exam Tip: Understanding the purpose of a Revaluation Account during partnership reconstruction is crucial for accurate financial reporting.

 

Question 1.
(2) Where are the effects given when the value of assets increase at the time of the reconstruction of a partnership firm ?
(A) Addition in assets value and the revaluation account will be credited.
(B) Subtraction from assets value and the revaluation account will be debited.
(C) Subtraction from assets value and the revaluation account will be credited.
(D) Addition from assets value and the revaluation account will be debited.
Answer: (A) Addition in assets value and the revaluation account will be credited.
In simple words: When assets appreciate during firm reconstruction, their value is increased, and the Revaluation Account is credited to reflect this gain.

🎯 Exam Tip: Correctly identifying the debit and credit effects of asset revaluation is fundamental for journal entries and preparing the Revaluation Account.

 

Question 1.
(3) Where are the effects given when the value of liabilities decrease at the time of the reconstruction of a partnership firm ?
(A) Subtract from such liabilities and the revaluation account will be credited.
(B) Subtract from such liabilities and the revaluation account will be debited.
(C) Addition in such liabilities and the revaluation account will be credited.
(D) Addition in such liabilities and the revaluation account will be debited.
Answer: (A) Subtract from such liabilities and the revaluation account will be credited.
In simple words: A reduction in liabilities during partnership reconstruction leads to a decrease in the liability amount and a credit to the Revaluation Account, as it represents a gain for the firm.

🎯 Exam Tip: Knowing how to record changes in liabilities during reconstruction helps in correctly calculating the revaluation profit or loss.

 

Question 1.
(4) Revaluation account is also known as ................
(A) Capital reserves account
(B) Profit-loss appropriation account
(C) Profit-loss adjustment account
(D) Profit-loss account
Answer: (C) Profit-loss adjustment account
In simple words: The Revaluation Account is essentially an account used to adjust profits and losses arising from the revaluation of assets and liabilities.

🎯 Exam Tip: Using alternative terminology for accounts demonstrates a deeper understanding of their function in accounting. This helps in understanding various accounting concepts.

 

Question 1.
(5) In which ratio profit or loss of revaluation account is distributed between the partners ?
(A) Sacrifice ratio
(B) Gain ratio
(C) New profit-loss ratio
(D) Old profit-loss ratio
Answer: (D) Old profit-loss ratio
In simple words: Any profit or loss determined from the revaluation of assets and liabilities is distributed among existing partners based on their original profit and loss sharing agreement.

🎯 Exam Tip: Remember that revaluation profit/loss relates to past periods and thus, should always be distributed in the old profit-sharing ratio among partners.

 

Question 1.
(6) Where is the accumulated profit as per the balance sheet shown at the time of the reconstruction of a partnership firm ?
(A) Credit side of revaluation account
(B) Credit side of profit-loss appropriation account
(C) Credit side of partners' capital account
(D) Debit side of partners' capital account
Answer: (C) Credit side of partners' capital account
In simple words: Undistributed profits accumulated in the balance sheet are transferred to the credit side of each partner's capital account during reconstruction, increasing their capital.

🎯 Exam Tip: Accumulated profits belong to the partners and are therefore allocated to their capital accounts, reflecting their share in the firm's undistributed earnings.

 

Question 1.
(7) In the reconstruction of partnership firm, sacrifice = ...............
(A) New profit-loss share × Old profit-loss share
(B) New profit-loss share - Old profit-loss share
(C) Old profit-loss share - New profit-loss share
(D) Old capital share - New capital share
Answer: (C) Old profit-loss share - New profit-loss share
In simple words: Sacrifice ratio calculates the difference between a partner's former profit share and their current profit share, indicating the portion of profit they have given up.

🎯 Exam Tip: The sacrifice ratio is essential for goodwill adjustments, as partners who sacrifice their share are compensated by gaining partners.

 

Question 1.
(8) In the reconstruction of a partnership firm, gain ratio = ...............
(A) New profit-loss share - Old profit-loss share
(B) Old profit-loss share - New profit-loss share
(C) New capital ratio - Old capital ratio
(D) Old capital ratio - New capital ratio
Answer: (A) New profit-loss share - Old profit-loss share
In simple words: The gain ratio is computed by subtracting a partner's previous profit share from their new profit share, revealing how much more profit they will receive.

🎯 Exam Tip: The gain ratio is the inverse of the sacrifice ratio and is equally important for goodwill adjustments, as gaining partners must compensate sacrificing partners.

 

Question 1.
(9) At the time of the reconstruction of a partnership firm, investments are shown at ............... value in the balance-sheet after the revaluation.
(A) Book value - market value
(B) Cost value
(C) Market value
(D) Face value
Answer: (C) Market value
In simple words: After revaluation during firm reconstruction, investments are presented in the balance sheet at their current market price, reflecting their true economic worth.

🎯 Exam Tip: Revaluation aims to present a true and fair view of the firm's financial position, thus market values are used for revalued assets like investments.

 

Question 1.
(10) Where is the worker profit sharing fund shown in balance sheet at the time of the reconstruction of a partnership firm ?
(A) Credit side of revaluation account
(B) Liabilities of balance sheet after reconstruction
(C) Credit side of partners' capital account
(D) Debit side of partners' capital account
Answer: (B) Liabilities of balance sheet after reconstruction
In simple words: A worker profit sharing fund represents a liability to the firm, and therefore it continues to be shown on the liabilities side of the reconstructed balance sheet.

🎯 Exam Tip: Funds like worker profit sharing are liabilities that typically remain unchanged during reconstruction unless specific adjustments are made to them.

 

Question 2.Answer the following questions in one sentence :
(1) What is reconstruction of a partnership ?
Answer:Reconstruction of a partnership signifies changes in the partnership structure or agreement arising from various reasons.
In simple words: Partnership reconstruction means changing how the partnership works due to different events, like admitting a new partner or changing profit shares.

🎯 Exam Tip: Briefly defining key terms like 'reconstruction' accurately is essential for foundational understanding in partnership accounting.

 

Question 2.
(2) What is revaluation account ?
Answer:A specialized account, known as the 'Revaluation Account,' is established to record the financial impact of reassessing the values of assets and liabilities.
In simple words: A revaluation account is a temporary ledger used to show how much assets and liabilities have changed in value when a business is reconstructed.

🎯 Exam Tip: Emphasize that the Revaluation Account highlights gains or losses from updating asset and liability values to their current market worth.

 

Question 2.
(3) What is sacrifice ratio ?
Answer:When the profit and loss sharing ratio among existing partners is altered, certain partners may experience a reduction in their share of profit; this decreased portion is termed as the 'Sacrifice Ratio'. Sacrifice ratio of a partner = Old profit and loss ratio of a partner - New profit and loss ratio of a partner.
In simple words: Sacrifice ratio shows how much profit share an existing partner gives up when the profit-sharing agreement changes, benefiting other partners.

🎯 Exam Tip: Clearly state the formula for sacrifice ratio, as it's frequently used in problems involving goodwill adjustments.

 

Question 2.
(4) What is gain ratio ?
Answer:When the profit and loss sharing ratio among existing partners changes, some partners may receive an increased share of profit; this augmented portion is referred to as the 'Gain Ratio'. Gain ratio of a partner = New profit and loss ratio of a partner - Old profit and loss ratio of a partner.
In simple words: Gain ratio indicates the additional profit share a partner receives when the profit-sharing agreement is revised.

🎯 Exam Tip: Present the gain ratio formula accurately and explain its role in compensating sacrificing partners for goodwill.

 

Question 2.
(5) How is the consolidated profit distributed ?
Answer:The consolidated profit is distributed among the continuing partners in their original profit and loss sharing ratio.
In simple words: Consolidated profit is shared among the partners who are still part of the firm, using their previous profit-sharing arrangement.

🎯 Exam Tip: Highlight that consolidated profit distribution follows the old ratio to ensure fairness to the partners for profits earned before the reconstruction.

 

Question 2.
(6) In which account revaluation account's profit-loss is transferred ?
Answer:Any profit or loss arising from the revaluation account is transferred to the capital or current accounts of the current partners according to their old profit and loss sharing ratio.
In simple words: The final profit or loss from revaluation is transferred to the partners' capital accounts, divided based on their old profit-sharing ratio.

🎯 Exam Tip: Accurately stating the destination and ratio for revaluation profit/loss transfer is a key step in financial statements for reconstruction.

 

Question 2.
(7) At which value assets-liabilities are shown in the balance sheet after revaluation ?
Answer:After revaluation, both assets and liabilities are presented in the balance sheet at their actual (market) values.
In simple words: Post-revaluation, assets and liabilities are recorded in the balance sheet at their current market values to reflect their true worth.

🎯 Exam Tip: Emphasize that the purpose of revaluation is to update values to reflect current economic reality, hence market values are used.

 

Question 2.
(8) Which is the other name known for the revaluation account ?
Answer:'Profit and Loss Adjustment Account' is another common name for the revaluation account.
In simple words: The revaluation account is also called the profit and loss adjustment account, as it adjusts previous period profits/losses due to revaluation.

🎯 Exam Tip: Knowing alternative names for accounts shows a comprehensive understanding of accounting terminology.

 

Question 3.Answer the following questions :
(1) Explain the meaning of partnership reconstruction and the circumstance for reconstruction.
Answer:"Changes in the partnership agreement for various reasons" is defined as the reconstruction of a partnership.
The following are the circumstances or reasons that necessitate reconstruction:
1. Alteration in the profit and loss sharing ratio among the existing partners.
2. Admission of a new partner into the existing partnership firm.
3. Retirement or demise of a partner from the existing partnership firm.
4. When the current partnership firm integrates with one or more other partnership firms.
In simple words: Partnership reconstruction means changing the firm's agreement, typically due to a new partner joining, an old partner leaving, or partners deciding to change how they share profits.

🎯 Exam Tip: Listing specific circumstances for reconstruction demonstrates a clear understanding of the triggers for such changes in a partnership firm.

 

Question 3.
(2) Explain the sacrifice ratio with illustration.
Answer:When the profit and loss sharing ratio among existing partners is changed, a portion of the profit of certain partners is reduced. This reduced share of profit for a partner is identified as the 'Sacrifice Ratio'.
(i) The sacrificing ratio is dependent on modifications made to the old profit and loss sharing ratio of the partners.
(ii) Sacrifice ratio represents the difference between a partner's old profit share and their new profit share.
(iii) Sacrificing ratio of a partner = Old share of profit - New share of profit. Illustration: Jyoti, Vina, and Kiran are partners in a firm sharing profits and losses equally. They decide to change their profit and loss ratio to 1 : 2 : 3. The sacrifice made by each partner is calculated below:

Name of the Partner	Old Share	New Share	Sacrifice done by Partner = Old share - New share	Sacrifice or Gain of a Partner
Jyoti	\( \frac{1}{3} \)	\( \frac{1}{6} \)	\( \frac{1}{3} - \frac{1}{6} = \frac{2-1}{6} = \frac{1}{6} \)	Sacrifice
Vina	\( \frac{1}{3} \)	\( \frac{2}{6} \)	\( \frac{1}{3} - \frac{2}{6} = \frac{2-2}{6} = 0 \)	Nil
Kiran	\( \frac{1}{3} \)	\( \frac{3}{6} \)	\( \frac{1}{3} - \frac{3}{6} = \frac{2-3}{6} = -\frac{1}{6} \)	Gain

Here, Jyoti will sacrifice while Kiran will gain.
In simple words: Sacrifice ratio shows how much an existing partner's profit share decreases after a change in the profit-sharing agreement. For example, if a partner's share goes from 1/3 to 1/6, they have sacrificed 1/6 of the profit.

🎯 Exam Tip: Always illustrate theoretical concepts with a practical example and a clear table to enhance understanding and score better.

 

Question 3.
(3) Explain the gain ratio with illustration.
Answer:When the profit and loss sharing ratio among existing partners is changed, a portion of the profit of certain partners is increased. This increased portion of profit for a partner is known as the 'Gain Ratio'.
Gain ratio is determined by the alteration in the old and new profit and loss sharing ratio of partners.
If a partner's new share of profit exceeds their old share, that partner registers a gain.
Gaining ratio of a partner = New share of profit - Old share of profit. Illustration: Heena, Beena, and Leena are partners in a firm sharing profits and losses equally. They decide to change their profit and loss sharing ratio to 2 : 2 : 1. The gaining ratio of partners is calculated below:

Name of the Partner	New Share	Old Share	Gain received by Partner = New share - Old share	Sacrifice or Gain of a Partner
Heena	\( \frac{2}{5} \)	\( \frac{1}{3} \)	\( \frac{2}{5} - \frac{1}{3} = \frac{6-5}{15} = \frac{1}{15} \)	Gain
Beena	\( \frac{2}{5} \)	\( \frac{1}{3} \)	\( \frac{2}{5} - \frac{1}{3} = \frac{6-5}{15} = \frac{1}{15} \)	Gain
Leena	\( \frac{1}{5} \)	\( \frac{1}{3} \)	\( \frac{1}{5} - \frac{1}{3} = \frac{3-5}{15} = -\frac{2}{15} \)	Sacrifice

Here, partners Heena and Beena will gain, and partner Leena will sacrifice.
In simple words: Gain ratio shows how much an existing partner's profit share increases after a change in the profit-sharing agreement. For example, if a partner's share increases from 1/3 to 2/5, they have gained a portion of the profit.

🎯 Exam Tip: Ensure that the calculation in the illustration clearly shows the difference between old and new shares, leading to a gain.

 

Question 3.
(4) Explain revaluation of assets and liabilities ? Prepare specimen of revaluation account.
Answer:When the book values of assets and liabilities recorded in a partnership firm's books are adjusted to reflect their current market or present values, this process is known as the revaluation of assets and liabilities. Specimen of Revaluation Account

Debit		Credit
Particulars	Amt. (Rs.)	Particulars	Amt. (Rs.)
To Assets A/c (Decrease in the value of assets)	...	By Assets A/c (Increase in the value of assets)	...
To Bad Debts Reserve A/c	...	By Assets A/c (Unrecorded assets)	...
To Discount Reserve on Debtors A/c	...	By Accrued Income A/c	...
To Liabilities A/c (Increase in Liabilities)	...	By Prepaid Expenses A/c	...
To Outstanding Liabilities A/c (Increase in Liability Value)	...	By Liability A/c (Decrease in Value)	...
To Partners' Capital/Current A/c: Profit A - B - C -	...	By Partners' Capital/Current A/c: Loss A - B - C -	...
	Total		Total

In simple words: Revaluation means updating the values of a firm's assets and liabilities from their old book values to their current market values. The Revaluation Account is used to record these changes, showing any profits or losses from these updates.

🎯 Exam Tip: Presenting a clear specimen of the Revaluation Account with appropriate debit and credit items is essential for demonstrating practical accounting knowledge.

 

Question 3.
(5) Write specimen journal entries for revaluation in following circumstances :
(A) When assets' value are increased and decreased.
(B) When liabilities' value are increased and decreased.
Answer:Journal Entry

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(A) (1)	When there is an increase in the value of assets : Respective assets A/c Dr. To Revaluation A/c (Being the assets value increase is recorded due to revaluation)		...	...
(2)	When there is decrease in the value of assets : Revaluation A/c Dr. To Respective assets A/c (Being the assets value decreases is recorded due to revaluation)		...	...
(B) (1)	If there is an increase in amount of liability : Revaluation A/c Dr. To Respective Liability A/c (Being the liability amount increased due to revaluation)		...	...
(2)	If there is decrease in amount of liability : Respective liability A/c Dr. To Revaluation A/c (Being the liability amount decreased due to revaluation)		...	...

In simple words: When assets go up in value, the specific asset account is debited, and Revaluation A/c is credited. If assets go down, Revaluation A/c is debited, and the asset account is credited. For liabilities, an increase means debiting Revaluation A/c and crediting the liability. A decrease means debiting the liability and crediting Revaluation A/c.

🎯 Exam Tip: A clear understanding of debit and credit rules for asset and liability revaluation is crucial for passing journal entries accurately.

 

Question 3.
(6) Write specimen journal entry for the distribution of reserve fund and accumulated profit of a partnership firm.
Answer:Specimen journal entry for the distribution of reserve fund and accumulated profit : Journal Entry

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
	Profit and loss A/c (Profit) (Accumulated Profit) Dr. Reserve Fund A/c Dr. To Partners' Capital/Current A/c (Being accumulated profit and reserve fund amount distributed among partners)		... ...	...

In simple words: To distribute accumulated profits and reserve funds, the Profit and Loss A/c and Reserve Fund A/c are debited, and the partners' Capital/Current Accounts are credited, reflecting their share.

🎯 Exam Tip: Remember that reserve funds and accumulated profits are partners' entitlements and must be distributed to their capital accounts in their old profit-sharing ratio.

 

Question 3.
(7) Write journal entries for the following assets-liabilities revaluation :
Assets and Liabilities
Machinery
Land
Creditors
Outstanding expenses
Income receivables
Book Value
1,00,000
3,00,000
1,00,000
-
-
Revaluation Value
80,000
5,00,000
95,000
3,000
2,000
Answer:Journal Entry

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
1.	Revaluation A/c Dr. To Machinery A/c (Being decrease in the value of machinery due to revaluation is recorded)		20,000	20,000
2.	Land A/c Dr. To Revaluation A/c (Being increase in the value of land due to revaluation is recorded.)		2,00,000	2,00,000
3.	Creditors A/c Dr. To Revaluation A/c (Being amount of Rs. 5,000 not to be paid to creditors is recorded)		5,000	5,000
4.	Revaluation A/c Dr. To outstanding expense A/c (Being the unrecorded outstanding expenses is recorded now)		3,000	3,000
5.	Receivable income A/c Dr. To Revaluation A/c (Being receivable income not recorded earlier now recorded)		2,000	2,000
Total			2,30,000	2,30,000

In simple words: This records changes in asset and liability values. Machinery decreased by Rs. 20,000, land increased by Rs. 2,00,000, creditors decreased by Rs. 5,000, outstanding expenses of Rs. 3,000 were recorded, and income receivable of Rs. 2,000 was also recorded. Each change affects the Revaluation Account.

🎯 Exam Tip: Always analyze the difference between book value and revaluation value to determine if it's a gain (credit to revaluation) or a loss (debit to revaluation).

 

Question 3.
(8) Difference between Sacrifice Ratio and Gain Ratio.
Answer:The following are the points of difference between Sacrifice Ratio and Gain Ratio:

Points	Sacrifice Ratio	Gain Ratio
1. Meaning	This refers to changes in the existing partners' profit-loss ratio due to partnership reconstruction, where a partner gives up a portion of their profit share in favor of other partners.	This refers to changes in the existing partners' profit-loss sharing ratio, where an existing partner receives a sacrificed share from other partners.
2. When is it computed ?	It is computed at the time of admitting a new partner and during the reconstruction of a partnership firm, specifically for the old partners.	It is calculated at the time of a partner's retirement or death, and during the reconstruction of a partnership, specifically for the existing partners.
3. Formula	Sacrifice of a partner = Old Share - New Share	Gain of a partner = New share - Old share
4. Why is it found ?	The sacrifice ratio is determined to distribute goodwill brought in by a new partner for their share and to make goodwill adjustments during the reconstruction of a partnership firm.	The gaining ratio is calculated to provide the share of goodwill to the retiring partner by the existing partners in their gain ratio, and to facilitate goodwill adjustments during the reconstruction of a partnership firm.

In simple words: Sacrifice ratio shows how much a partner gives up, calculated as Old Share minus New Share, usually for new partners or goodwill adjustment. Gain ratio shows how much a partner receives, calculated as New Share minus Old Share, typically for retiring partners or goodwill adjustment.

🎯 Exam Tip: Understanding the distinction between sacrifice and gain ratios is critical for solving problems related to goodwill and partnership reconstruction.

 

Question 4.Amar and Akbar are the partners of a firm distributing profit-losses of the firm in equal proportion. They decided to change their profit-loss sharing proportion to 3 : 2 for future. Under this circumstances, calculate what sacrifice has been made by which partner.
Answer:

Name of the Partner	Old Share	New Share	Sacrifice done by Partner = Old share - New share	Sacrifice or Gain of a Partner
Amar	\( \frac{1}{2} \)	\( \frac{3}{5} \)	\( \frac{1}{2} - \frac{3}{5} = \frac{5-6}{10} = -\frac{1}{10} \)	Gain
Akbar	\( \frac{1}{2} \)	\( \frac{2}{5} \)	\( \frac{1}{2} - \frac{2}{5} = \frac{5-4}{10} = \frac{1}{10} \)	Sacrifice

Here, Sacrifice of Akbar = \( \frac{1}{10} \) and Gain of Amar = \( \frac{1}{10} \)
In simple words: Amar and Akbar, originally sharing profits equally, changed their ratio to 3:2. By calculating the difference between old and new shares, it's found that Akbar sacrificed 1/10 of the profit, which Amar gained.

🎯 Exam Tip: Always verify that the total sacrifice equals the total gain to ensure accuracy in calculations.

 

Question 5.Komal, Krupa and Karishma are the partners' of a partnership firm. They distribute profit-loss in the ratio of 3 : 2 : 1. All the partners have decided to change the profit-loss sharing ratio to 5:3:2 for future. From this information calculate the sacrifice ratio.
Answer:

Name of the Partner	Old Share	New Share	Sacrifice done by Partner = Old share - New share	Sacrifice or Gain of a Partner
Komal	\( \frac{3}{6} \)	\( \frac{5}{10} \)	\( \frac{3}{6} - \frac{5}{10} = \frac{30-30}{60} = 0 \)	Nil
Krupa	\( \frac{2}{6} \)	\( \frac{3}{10} \)	\( \frac{2}{6} - \frac{3}{10} = \frac{20-18}{60} = \frac{2}{60} = \frac{1}{30} \)	Sacrifice
Karishma	\( \frac{1}{6} \)	\( \frac{2}{10} \)	\( \frac{1}{6} - \frac{2}{10} = \frac{10-12}{60} = -\frac{2}{60} = -\frac{1}{30} \)	Gain

Here, Sacrifice of Krupa = \( \frac{1}{30} \) and Gain of Karishma = \( \frac{1}{30} \)
In simple words: Komal, Krupa, and Karishma changed their profit-sharing ratio from 3:2:1 to 5:3:2. Calculations show that Komal neither sacrificed nor gained, Krupa sacrificed 1/30 of her share, and Karishma gained 1/30.

🎯 Exam Tip: Ensure that the denominator for all shares is standardized (e.g., 60 in this case) before performing subtraction to find sacrifice or gain.

 

Question 6.Sachin, Rahul and Rohit are the partners of a partnership firm. Profit-loss sharing ratio is 1 : 2 : 2 between them. All partners have decided to change profit-loss sharing ratio to 3 : 2 : 1. Calculate the sacrifice ratio of partners.
Answer:

Name of the Partner	Old Share	New Share	Sacrifice done by Partner = Old share - New share	Sacrifice or Gain of a Partner
Sachin	\( \frac{1}{5} \)	\( \frac{3}{6} \)	\( \frac{1}{5} - \frac{3}{6} = \frac{6-15}{30} = -\frac{9}{30} \)	Gain
Rahul	\( \frac{2}{5} \)	\( \frac{2}{6} \)	\( \frac{2}{5} - \frac{2}{6} = \frac{12-10}{30} = \frac{2}{30} \)	Sacrifice
Rohit	\( \frac{2}{5} \)	\( \frac{1}{6} \)	\( \frac{2}{5} - \frac{1}{6} = \frac{12-5}{30} = \frac{7}{30} \)	Sacrifice

Here, Sacrifice of Rahul = \( \frac{2}{30} \), Rohit = \( \frac{7}{30} \) and Gain of Sachin = \( \frac{9}{30} \)
In simple words: Sachin, Rahul, and Rohit adjusted their profit-sharing ratio from 1:2:2 to 3:2:1. After calculations, it was found that Sachin gained 9/30, while Rahul sacrificed 2/30 and Rohit sacrificed 7/30 of their respective shares.

🎯 Exam Tip: When multiple partners sacrifice or gain, ensure the sum of sacrifices equals the sum of gains to confirm calculation accuracy.

 

Question 7.Dipak, Nilesh and Pratik are the partners of a partnership firm. Their profit-loss sharing ratio is 1:2:3, which is decided to change to 2 : 2: 1 respectively for future. Under these circumstances, calculate what gain is received by which partners ?
Answer:

Name of the Partner	Old Share	New Share	Sacrifice done by Partner = Old share - New share	Sacrifice or Gain of a Partner
Dinesh	\( \frac{2}{5} \)	\( \frac{1}{6} \)	\( \frac{2}{5} - \frac{1}{6} = \frac{12-5}{30} = \frac{7}{30} \)	Gain
Nilesh	\( \frac{2}{5} \)	\( \frac{2}{6} \)	\( \frac{2}{5} - \frac{2}{6} = \frac{12-10}{30} = \frac{2}{30} \)	Gain
Pratik	\( \frac{1}{5} \)	\( \frac{3}{6} \)	\( \frac{1}{5} - \frac{3}{6} = \frac{6-15}{30} = -\frac{9}{30} \)	Sacrifice

Here, Gain of Dinesh = \( \frac{7}{30} \), Nilesh = \( \frac{2}{30} \) and Sacrifice of Pratik = \( \frac{9}{30} \)
In simple words: Dipak, Nilesh, and Pratik changed their profit-sharing ratio. Dinesh gained 7/30 and Nilesh gained 2/30, while Pratik sacrificed 9/30 of his share. The total gain equals the total sacrifice.

🎯 Exam Tip: Always calculate the difference from the old share to determine if it's a positive sacrifice or a negative (gain) sacrifice.

 

Question 8.Raju, Hasu and Sanju are the partners of a partnership firm. Their profit-loss sharing ratio is 5:4:3. All the partners have decided to change their profit-loss sharing ratio to 2 : 2 : 1. From this information find out the gain ratio.
Answer:

Name of the Partner	New Share	Old Share	Gain of a Partner = New share - Old share	Sacrifice or Gain of a Partner
Raju	\( \frac{2}{5} \)	\( \frac{5}{12} \)	\( \frac{2}{5} - \frac{5}{12} = \frac{24-25}{60} = -\frac{1}{60} \)	Sacrifice
Hasu	\( \frac{2}{5} \)	\( \frac{4}{12} \)	\( \frac{2}{5} - \frac{4}{12} = \frac{24-20}{60} = \frac{4}{60} \)	Gain
Sanju	\( \frac{1}{5} \)	\( \frac{3}{12} \)	\( \frac{1}{5} - \frac{3}{12} = \frac{12-15}{60} = -\frac{3}{60} \)	Sacrifice

Here, Sacrifice of Raju = \( \frac{1}{60} \) and Sanju = \( \frac{3}{60} \) and Gain of Hasu = \( \frac{4}{60} \)
In simple words: Raju, Hasu, and Sanju changed their profit-sharing from 5:4:3 to 2:2:1. After calculating the gain/sacrifice, it's determined that Raju sacrificed 1/60, Sanju sacrificed 3/60, and Hasu gained 4/60 of the profit.

🎯 Exam Tip: Use the gain formula (New Share - Old Share) to directly calculate gains and negative results will indicate a sacrifice.

 

Question 9.Pravin, Mahendra and Arvind are the partners of a partnership firm. Their profit-loss sharing ratio is 5 : 2 : 2. All the partners have decided to change the profit-loss sharing ratio to \( \frac{2}{9} \), \( \frac{3}{9} \) and \( \frac{4}{9} \) as new ratio. From this information find out what sacrifice has been made by which partner by using sacrifice formula. From above information, by using gain formula find out what sacrifice has been made by which partner.
Answer:By Sacrifice Formula :

Name of the Partner	Old Share	New Share	Sacrifice of a Partner = Old share - New share	Sacrifice or Gain of a Partner
Pravin	\( \frac{5}{9} \)	\( \frac{2}{9} \)	\( \frac{5}{9} - \frac{2}{9} = \frac{3}{9} \)	Sacrifice
Mahendra	\( \frac{2}{9} \)	\( \frac{3}{9} \)	\( \frac{2}{9} - \frac{3}{9} = -\frac{1}{9} \)	Gain
Arvind	\( \frac{2}{9} \)	\( \frac{4}{9} \)	\( \frac{2}{9} - \frac{4}{9} = -\frac{2}{9} \)	Gain

Here, Sacrifice of Pravin = \( \frac{3}{9} \) and Gain of Mahendra = \( \frac{1}{9} \) and Arvind = \( \frac{2}{9} \).
By Gain Formula :

Name of the Partner	New Share	Old Share	Gain of a Partner = New share - Old share	Sacrifice or Gain of a Partner
Pravin	\( \frac{2}{9} \)	\( \frac{5}{9} \)	\( \frac{2}{9} - \frac{5}{9} = -\frac{3}{9} \)	Sacrifice
Mahendra	\( \frac{3}{9} \)	\( \frac{2}{9} \)	\( \frac{3}{9} - \frac{2}{9} = \frac{1}{9} \)	Gain
Arvind	\( \frac{4}{9} \)	\( \frac{2}{9} \)	\( \frac{4}{9} - \frac{2}{9} = \frac{2}{9} \)	Gain

Here, Gain of Mahendra = \( \frac{1}{9} \) and Arvind = \( \frac{2}{9} \) and Sacrifice of Pravin = \( \frac{3}{9} \).
In simple words: Pravin, Mahendra, and Arvind changed their profit-sharing ratio. Using the sacrifice formula, Pravin sacrificed 3/9, while Mahendra and Arvind gained 1/9 and 2/9 respectively. The gain formula confirmed these results, with Pravin sacrificing 3/9, and Mahendra and Arvind gaining 1/9 and 2/9.

🎯 Exam Tip: Practice both sacrifice and gain formulas; consistent results using either formula confirm the accuracy of your calculations.

 

Question 10.Rajesh, Pushpa and Pratibha are the partners of a "Shreenathji Traders" partnership firm. Their profit-loss sharing ratio is 2 : 3 : 1. Their firms' balance-sheet as on 31-3-2017 is as under:

Shreenathji Traders' Balance Sheet as on 31-3-2017

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital : Rajesh	2,00,000	Non-current assets : Land	1,80,000
Pushpa	1,00,000	Building	3,00,000
Pratibha	2,00,000	5,00,000	Machinery	1,20,000
Non-current liabilities :		Investments	40,000
10% bank loan	80,000	Current assets :
Current liabilities :		Debtors	50,000
Creditors	1,70,000	Bills receivables	10,000
Bills payable	40,000	Closing stock	35,000
Workers' profit sharing fund	29,000	Bank balance	60,000
Outstanding expenses	10,000	Cash balance	30,000
		Income receivables	4,000
	8,29,000		8,29,000

As on above date of the balance sheet, partners decided to change profit-loss sharing ratio to 1: 1: 1. On this date they decided to revalue the assets and liabilities for which is under:
(1) The value of land is to be increased upto Rs. 2,50,000 and building value is to be increased by Rs. 50,000. (2) The value of machinery is to be decreased upto Rs. 80,000. (3) The value of investments is to be reduced 30%. (4) Provision for bad debt reserve at 20% and discount reserve of 5% is to be made on debtors. (5) The stock value of Rs. 15,000 is to be reduced by 20%. (6) An amount of Rs. 20,000 is not to be paid to creditors. (7) Rs. 3,000 for outstanding expenses and Rs. 2,000 for income receivable are not recorded in the books. From the above information, write journal entries in the books of the partnership firm and also prepare the revaluation account.
Answer:Journal entries in the books of partnership firm 'Shreenathji Traders' of Rajesh, Pushpa and Pratibha

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
1.	Land A/c Dr. To Revaluation A/c (Being increase in the value of land is recorded due to revaluation)		70,000	70,000
2.	Building A/c Dr. To Revaluation A/c (Being increase in the value of building is recorded due to revaluation)		50,000	50,000
3.	Revaluation A/c Dr. To Machine A/c (Being decreases in the value of machine is recorded due to revaluation)		40,000	40,000
4.	Revaluation A/c Dr. To Investments A/c (Being value of investments decrease is recorded due to revaluation)		12,000	12,000
5.	Revaluation A/c Dr. To Bad debts reserve A/c To Discount reserve on debtors A/c (Being provided 20% BDR and 5% discount reserve on the debtors)		12,000	10,000 2,000
6.	Revaluation A/c Dr. To Stock A/c (Being value of closing stock decreased by 20% due to revaluation)		3,000	3,000
7.	Creditors A/c Dr. To Revaluation A/c (Being an amount of Rs. 20,000 not to be paid to creditors, now recorded)		20,000	20,000
8.	Revaluation A/c Dr. To Outstanding expense A/c (Being unrecorded o/s expense is now recorded)		3,000	3,000
9.	Receivable income A/c Dr. To Revaluation A/c (Being unrecorded receivable income is now recorded)		2,000	2,000
10.	Revaluation A/c Dr. To Rajesh's Capital A/c To Pushpa's Capital A/c To Pratibha's Capital A/c (Being profit of revaluation account distributed among partners in their old profit-loss ratio)		72,000	24,000 36,000 12,000
Total			2,84,000	2,84,000

Revaluation Account as on 31-3-2017 (Profit and Loss Adjustment A/c)

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Machinery A/c	40,000	By Land A/c	70,000
To Investment A/c	12,000	By Building A/c	50,000
To Bad debts reserve A/c	10,000	By Creditors A/c	20,000
To Discount reserve on debtors A/c	2,000	By Receivable income A/c	2,000
To Closing stock A/c	3,000
To Outstanding expense A/c	3,000
Profit: To Partners' Capital A/c:
(2:3:1) Rajesh	24,000
Pushpa	36,000
Pratibha	12,000	72,000
	1,42,000		1,42,000

Note:
(1) Value of land is Rs. 1,80,000, which is to be increased upto Rs. 2,50,000. It means
\( 2,50,000 - Rs. 1,80,000 = Rs. 70,000 \) is credited to Revaluation Account.
(2) Value of machinery is Rs. 1,20,000 which is to be decreased upto Rs. 80,000. It means that
\( Rs. 1,20,000 - Rs. 80,000 = Rs. 40,000 \) is debited to Revaluation Account.
In simple words: This question involves revaluing assets and liabilities of "Shreenathji Traders" for partnership reconstruction. Journal entries are made for increases in land and building, decreases in machinery, investments, stock, and provisions for bad debts and discount. Adjustments for unrecorded outstanding expenses and income receivable are also made. Finally, the revaluation profit is distributed to partners.

🎯 Exam Tip: When given a comprehensive revaluation problem, systematically address each asset and liability adjustment with its corresponding journal entry and then compile them into the Revaluation Account. Always show the distribution of revaluation profit/loss to partners.

 

Question 11. Manju, Prabha and Meena are the partners of a partnership firm. Their profit-loss sharing ratio is 5 : 3 : 2. They want to change their profit-loss sharing ratio to 3 : 2 : 1. Therefore, they decided to revalue the assets-liabilities of the firm. From the following information prepare revaluation account and balance sheet after revaluation.
Answer:

The revaluation of a firm's assets and liabilities occurs when their book values are updated to reflect their current market values. This process is undertaken when there is a change in the profit-loss sharing ratio among partners. The following accounts and balance sheet reflect the adjustments made:

Additional Information:
(1) The value of land-building is to be increased by 25%.
(2) The value of furniture is to be reduced by 10%.
(3) The value of machinery is to be kept 80%.
(4) The book value of closing stock is Rs. 5,000 more than its market value.
(5) Total amount of Rs. 2,500 is to be kept for bad debts reserve on debtors.
(6) An amount of Rs. 3,000 among the creditors is now not to be paid.
(7) Interest on bank loan for last three month is outstanding.

Revaluation Account as on 31-3-2017

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Furniture A/c	3,000	By Land-Building A/c	25,000
To Machinery A/c	10,000	By Creditors A/c	3,000
To Stock A/c	5,000
To Bad debts reserve A/c	1,500
To O/s interest on bank loan A/c	900
Profit: To Partners' Current A/c:
(2:3:4) Manju	3,800
Prabha	2,280
Meena	1,520
	7,600
Total	28,000	Total	28,000

 

Balance Sheet of Partnership firm of Manju, Prabha and Meena's as on 31-03-2017 after Revaluation

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital Accounts:		Non-Current Assets:
Manju	1,50,000	Land-building	1,00,000
Prabha	40,000	+ Increase	25,000
Meena	30,000	2,20,000		1,25,000
Current Accounts:		Machinery	50,000
Manju	10,000	- Decrease	10,000
+ Profit	3,800	13,800		40,000
Prabha	20,000		Furniture	30,000
+ Profit	2,280	22,280	- Decrease	3,000
Meena	9,000			27,000
+ Profit	1,520	10,520	46,600	Investments	50,000
12% Bank loan	30,000		Current Assets:
+ O/s int. on bank loan	900	30,900	Closing Stock	40,000
Creditors	40,000		- Decrease	5,000
- Amt. not to pay	3,000	37,000		35,000
Bills payable	10,000		Debtors	25,000
			- B.D.R.	2,500
				22,500
			Bills receivable	5,000
			Cash balance	40,000
Total	3,44,500	Total	3,44,500

Note:
(1) The value of machinery is to be kept at 80%. This implies a 20% decrease. For machinery valued at Rs. 50,000, a 20% reduction amounts to Rs. 10,000 (Rs. 50,000 \( \times \) 20/100), which is recorded as a decrease.
(2) The interest on the bank loan is calculated as Rs. 30,000 \( \times \) 12/100 \( \times \) 3/12, resulting in an outstanding amount of Rs. 900.

In simple words: This question demonstrates how a partnership firm adjusts its asset and liability values when partners change their profit-sharing ratio. It involves creating a revaluation account to record gains and losses from these adjustments and then updating the balance sheet to reflect the new, revalued figures and distribute any revaluation profit/loss to partners' capital accounts.

🎯 Exam Tip: When preparing revaluation accounts and balance sheets, meticulously apply all given adjustments to both assets and liabilities. Remember to correctly distribute the revaluation profit or loss among partners in their specified old profit-sharing ratio to ensure accuracy and score maximum marks.

 

Question 12. Alay and Sanket are the partners of a partnership firm. Profit-loss sharing ratio among them is 2 : 1. As on 31-3-2017, the following are the balance in the books of firm.

Profit-loss account (Debit balance) Rs. 18,000
Reserve fund Rs. 27,000
Workers' profit sharing fund Rs. 33,000
Workers' accident compensation fund Rs. 21,000

On the above date, Alay and Sanket decided to change their profit-loss sharing ratio to 1: 1. A claim of 6,000 is outstanding payable to workers against workers accident compensation fund. Pass journal entries showing distribution of accumulated profit-loss in the books of firm.
Answer:

When partners decide to alter their profit-loss sharing arrangement, it is customary to distribute accumulated profits and losses, as well as specific reserves, among the existing partners. In this scenario, Alay and Sanket, with an initial profit-loss ratio of 2:1, change to a 1:1 ratio. The following journal entries illustrate the proper distribution of various funds and the handling of a workers' accident compensation claim:

Journal entries in the books of partnership firm of Alay and Sanket

Date/No.	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
1.	Alay's Capital A/c Dr. Sanket's Capital A/c Dr.     To Profit-Loss A/c (This entry distributes the debit balance of the profit-loss account among partners in their old profit and loss ratio.)		12,000 6,000	18,000
2.	Reserve Fund A/c Dr. Workers Accident Compensation Fund A/c Dr.     To Alay's Capital A/c     To Sanket's Capital A/c (This entry records the distribution of the reserve fund and the remaining balance of the workers' accident compensation fund (Rs. 21,000 - Rs. 6,000 = Rs. 15,000) among partners based on their old profit and loss ratio.)		27,000 15,000	28,000 14,000
	Total		60,000	60,000

In simple words: When a partnership changes its profit-sharing ratio, existing profits, losses, and reserves (like the reserve fund and workers' accident compensation fund) are distributed among partners in their old ratio. This clears out past accumulated items before the new ratio takes effect.

🎯 Exam Tip: Remember to first account for any specific claims (like a workers' accident claim) against a designated fund before distributing the remaining balance. Also, always use the *old* profit-sharing ratio for distributing accumulated profits, losses, and general reserves at the time of partnership reconstruction.

 

Question 13. From the following information, pass necessary journal entries and prepare a revaluation account and a balance sheet after revaluation in the books of Sajan and Nirmi.

Sajan and Nirmi are the partners sharing profit-loss in the ratio of 5 : 3. Their firm's balance sheet as on 31-3-2017 is as under:

Balance Sheet as on 31-3-2017 of Sajan and Nirmi's Firm

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital account:		Non-current assets:
Sajan	80,000	Land-building	1,40,000
Nirmi	50,000	1,30,000	Machinery	80,000
General reserve	80,000	Furniture	30,000
Profit-loss account	48,000	Investments (Market value Rs. 18,000)	20,000
Non-current liabilities:		Current assets:
12% bank loan	70,000	Debtors	40,000
Current liabilities:		- Bad debts reserve	1,500
Creditors	32,000		38,500
Bills payable	10,000	Stock	31,500
		Cash balance	30,000
Total	3,70,000	Total	3,70,000

Partners decided to revalue the assets and liabilities of the firm and to distribute profit in the ratio of 1 : 1 for future.

(1) The value of land-building is to be increased by 10%.
(2) The value of machinery and furniture is to be reduced by 40%.
(3) Rs. 1,000 bad debts reserve on debtors is not required.
(4) Necessary repairing expense is required for stock.
(5) Rs. 1,500 out of creditors is now not to be paid which is to be recorded in the books.
(6) Outstanding expenses is Rs. 10,000 and income receivable is Rs. 2,000.
(7) Investment is to be shown at its market value.
Answer:

To accurately reflect the firm's financial position after the change in profit-sharing ratio, a revaluation of assets and liabilities is necessary. The following journal entries detail each adjustment, followed by the Revaluation Account, and finally the updated Balance Sheet for Sajan and Nirmi, who have decided to move to an equal profit-sharing ratio of 1:1 from their old ratio of 5:3:

Journal entries in the books of partnership firm of Alay and Sanket

Date/No.	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
1.	Land-Building A/c Dr.     To Revaluation A/c (This entry records the increase in the value of land-building due to revaluation.)		14,000	14,000
2.	Revaluation A/c Dr.     To Machinery A/c     To Furniture A/c (This entry records the decrease in the value of machinery and furniture due to revaluation.)		44,000	32,000 12,000
3.	Bad debts reserve A/c Dr.     To Revaluation A/c (This entry records that the bad debts reserve is no longer required.)		1,000	1,000
4.	Revaluation A/c Dr.     To Stock A/c (This entry records the necessary repairing expense required for the closing stock.)		1,500	1,500
5.	Creditors A/c Dr.     To Revaluation A/c (This entry records the amount not to be paid to creditors.)		1,500	1,500
6. (i)	Revaluation A/c Dr.     To Outstanding expense A/c (This entry records the unrecorded outstanding expense.)		10,000	10,000
(ii)	Receivable Income A/c Dr.     To Revaluation A/c (This entry records the unrecorded receivable income.)		2,000	2,000
7.	Revaluation A/c Dr.     To Investments A/c (This entry records the decrease in the market value of investments.)		2,000	2,000
8.	General reserve A/c Dr.     To Sajan's capital A/c     To Nirmi's capital A/c (This entry distributes the balance of the general reserve among partners in their old profit-loss ratio.)		80,000	50,000 30,000
9.	Profit-loss A/c Dr.     To Sajan's capital A/c     To Nirmi's capital A/c (This entry distributes the credit balance of the profit-loss account among partners in their old profit-loss ratio.)		48,000	30,000 18,000
10.	Sajan's capital A/c Dr. Nirmi's capital A/c Dr.     To Revaluation A/c (This entry distributes the loss of the revaluation account among partners in their old profit-loss ratio.)		24,375 14,625	39,000
	Total		2,43,000	2,43,000

 

Revaluation Account of partnership firm of Sajan and Nirmi as on 31-3-2017 (Profit-Loss Adjustment A/c)

Debit Particulars	Amt. (Rs.)	Credit Particulars	Amt. (Rs.)
To Machinery A/c	32,000	By Land-Building A/c	14,000
To Furniture A/c	12,000	By Bad debts reserve A/c	1,000
To Stock A/c	1,500	By Creditors A/c	1,500
To O/s exp. A/c	10,000	By Receivable income A/c	2,000
To Investment A/c	2,000	Loss: By Partners' Capital A/c
		Sajan	24,375
		Nirmi	14,625
			39,000
Total	57,000	Total	57,000

 

Partners' Capital Accounts

Debit Particulars	Sajan (Rs.)	Nirmi (Rs.)	Credit Particulars	Sajan (Rs.)	Nirmi (Rs.)
To Revaluation A/c	24,375	14,625	By Balance b/d	80,000	50,000
To Balance c/d	1,35,625	83,375	By General Reserve A/c	50,000	30,000
			By Profit-Loss A/c	30,000	18,000
Total	1,60,000	98,000	Total	1,60,000	98,000

 

Balance Sheet of partnership firm of Sajan and Nirmi as on 31-3-2017 after revaluation

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital account:		Non-Current Assets:
Sajan	1,35,625	Land-Building	1,40,000
Nirmi	83,375	2,19,000	+ Increase	14,000
Non-Current Liabilities:			1,54,000
12% Bank Loan	70,000	Machinery	80,000
Current Liabilities:		- Decrease	32,000
Creditors	30,500		48,000
Bills payable	10,000	Furniture	30,000
Out standing expenses	10,000	- Decrease	12,000
			18,000
		Investments	18,000
Current Assets:
Debtors	40,000
- B.D.R. (A)	500
			39,500
Stock	31,500
- Decrease	1,500
			30,000
Cash balance	30,000
Receivable income	2,000
Total	3,39,500	Total	3,39,500

In simple words: This solution demonstrates how to record changes in asset and liability values (revaluation) through journal entries and a revaluation account. It also shows how general reserves and accumulated profits/losses are distributed to partners, culminating in an updated balance sheet that reflects the firm's financial position after all adjustments and a change in profit-sharing ratio.

🎯 Exam Tip: When preparing the final balance sheet after revaluation, ensure that all assets and liabilities are shown at their new, adjusted values. Double-check that all revaluation profits/losses, general reserves, and accumulated profits/losses have been correctly transferred to the partners' capital accounts in their old profit-sharing ratio.

 

Question 14. Dattu, Daya and Tarak are the partners of a partnership firm sharing profit-losses in the ratio of 4:3:2. Their firm's balance sheet as on 31-3-2017 is as under:

Balance sheet as on 31-3-2017 of Dattu, Daya and Tarka's firm

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital account:		Non-current assets:
Dattu	1,00,000	Land-building	90,000
Daya	50,000	Machinery	80,000
Tarak	50,000	2,00,000	Furniture	20,000
Reserves:		Investments	15,000
General reserve	36,000	Current assets:
Workers accident compensation fund	23,000	Debtors	80,000
Non-current liabilities:		- Bad debts	4,000
9% Bank Loan	40,000		76,000
Current-liabilities:		Bad debts reserve	6,000
Creditors	50,000	Bills receivable	5,000
Bills payable	20,000	Stock	15,000
Bank overdraft	8,000	Cash balance	55,000
		Profit-loss account	27,000
Total	3,77,000	Total	3,77,000

As on above balance sheet date, partners changed profit-loss sharing ratio 1:1:1 and the following revaluation account is prepared for the revaluation of assets and liabilities.

A claim of Rs. 5,000 was against workers accident compensation fund.

From the above information write journal entries and prepare partners' capital account and balance sheet after revaluation.
Answer:

Upon a change in the profit-loss sharing ratio to 1:1:1, it's essential to revalue the firm's assets and liabilities and distribute existing reserves and accumulated profits/losses. The following sections provide the revaluation account, journal entries for adjustments and distributions, and the updated partners' capital accounts and balance sheet reflecting these changes for Dattu, Daya, and Tarak:

Revaluation Account

Dr. Particulars	Amt. (Rs.)	Cr. Particulars	Amt. (Rs.)
To Machinery A/c	35,000	By Land-building A/c	10,000
To Furniture A/c	5,000	By Creditors A/c	6,000
To Investment A/c	3,000	By Income receivables A/c	3,000
To Bad debts reserve A/c	10,000	By Partners' capital A/c (Loss):
To Stock A/c	3,000	Dattu	18,000
To Outstanding expenses A/c	2,000	Daya	13,500
To Bank overdraft interest A/c	1,500	Tarak	9,000
			40,500
Total	59,500	Total	59,500

 

Journal entries in the books of partnership firm of Dattu, Daya and Tarak

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
1.	Revaluation A/c Dr.     To Machinery A/c     To Furniture A/c     To Investments A/c     To Stock A/c     To Bad debts reserve A/c     To Outstanding expense A/c     To O/s interest on bank overdraft A/c (This entry records changes in the values of assets and liabilities due to revaluation.)		59,500	35,000 5,000 3,000 3,000 10,000 2,000 1,500
2.	Land-Building A/c Dr. Creditors A/c Dr. Receivable income A/c Dr.     To Revaluation A/c (This entry records changes in the values of assets and liabilities due to revaluation.)		10,000 6,000 3,000	19,000
3.	Dattu's Capital A/c Dr. Daya's Capital A/c Dr. Tarak's Capital A/c Dr.     To Revaluation A/c (This entry distributes the loss of the revaluation account among partners in their old profit-loss ratio.)		18,000 13,500 9,000	40,500
4.	General reserve A/c Dr.     To Dattu's Capital A/c     To Daya's Capital A/c     To Tarak's Capital A/c (This entry distributes the general reserve amount among partners in their old profit-loss ratio.)		36,000	16,000 12,000 8,000
5.	Workers Accident Compensation Fund A/c Dr.     To Dattu's Capital A/c     To Daya's Capital A/c     To Tarak's Capital A/c (This entry distributes the balance of the workers' accident compensation fund among partners in their old profit-loss ratio.)		18,000	8,000 6,000 4,000
6.	Dattu's Capital A/c Dr. Daya's Capital A/c Dr. Tarak's Capital A/c Dr.     To Profit and Loss A/c (This entry distributes the debit balance of the profit-loss account among continuing partners in their old profit-loss ratio.)		12,000 9,000 6,000	27,000
	Total		2,00,000	2,00,000

 

Partners' Capital Accounts

Debit Particulars	Dattu (Rs.)	Daya (Rs.)	Tarak (Rs.)	Credit Particulars	Dattu (Rs.)	Daya (Rs.)	Tarak (Rs.)
To Revaluation A/c	18,000	13,500	9,000	By Balance b/d	1,00,000	50,000	50,000
To Profit-loss A/c	12,000	9,000	6,000	By General Reserve A/c	16,000	12,000	8,000
To Balance c/d	94,000	45,500	47,000	By Workers Accident Compensation Fund A/c	8,000	6,000	4,000
Total	1,24,000	68,000	62,000	Total	1,24,000	68,000	62,000

 

Balance Sheet of partnership firm of Dattu, Daya and Tarak as on 31-3-2017 after revaluation

Liabilities	Amt. (Rs.)	Assets	Amt. (Rs.)
Capital accounts:		Non-Current Assets:
Dattu	94,000	Land-Building	90,000
Daya	45,500	+ Increase	10,000
Tarak	47,000	1,86,500		1,00,000
Workers Accident Compensation Fund	5,000	Machinery	80,000
Non-Current Liabilities:		- Decrease	35,000
9% Bank Loan	40,000		45,000
Current Liabilities:		Furniture	20,000
Creditors	44,000	- Decrease	5,000
Bills Payable	20,000		15,000
Bank overdraft	8,000	Investments	12,000
Outstanding expense	2,000	Current Assets:
Outstanding interest on bank overdraft	1,500	Debtors	80,000
		- Bad debts	4,000
			76,000
		Bad debts reserve	16,000
		Bills receivable	5,000
		Stock	15,000
		- Decrease	3,000
			12,000
		Cash balance	55,000
		Receivable income	3,000
Total	3,07,000	Total	3,07,000

In simple words: This solution demonstrates the comprehensive accounting steps required when a partnership changes its profit-sharing ratio. It involves revaluing assets and liabilities through specific journal entries, determining the revaluation loss, distributing this loss along with existing reserves and accumulated profits/losses to partners' capital accounts, and finally, presenting a new balance sheet with all updated figures.

🎯 Exam Tip: When dealing with multiple adjustments during revaluation, carefully categorize each item as a gain or loss to the Revaluation Account. Ensure all pre-existing reserves and accumulated profits/losses are distributed in the old profit-sharing ratio before preparing the final capital accounts and balance sheet.