Question

Alok, Sameer and Tushar were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2. With effect from 1st April, 2024, they decided to share future profits and losses in the ratio of 3 : 2 : 4. Their Balance Sheet as at 31st March, 2024 showed the following: (i) Advertisement Suspense Account \u20b9 90,000.
(ii) Credit Balance of \u20b9 2,70,000 in Profit and Loss Account.
Goodwill of the firm was valued at \u20b9 4,50,000 and revaluation of assets and liabilities resulted in a loss of \u20b9 1,80,000. Partners did not want to distribute the amount of Advertisement Suspense Account and the Profit and Loss Account. They also decided that revalued values of assets and liabilities were not to be recorded in the books. Pass a single adjustment entry to give effect to the above. Also show your workings clearly.

Hint:

Even if net effect of revaluation and reserves is zero, goodwill adjustment must be passed based on change in ratio.

Answer 1

Step 1: Calculate total undistributed profit/loss.
Profit and Loss A/c (credit): ₹ 2,70,000
Advertisement Suspense A/c (fictitious asset): ₹ 90,000
Revaluation loss (to be adjusted through capital, not recorded): ₹ 1,80,000 [ Net Effect = 2,70,000 (gain) - 90,000 (loss) - 1,80,000 (loss) = 0 ] Total net adjustment is 0. However, individual effects must be adjusted in the capital accounts using old and new ratios. Step 2: Goodwill Adjustment. Total goodwill: ₹ 4,50,000. Gaining Ratio: New - Old = [(3/9, 2/9, 4/9) - (4/9, 3/9, 2/9) = (-1/9, -1/9, +2/9)]. Tushar gains 2/9. Alok and Sameer sacrifice 1/9 each. [ Tushar to be debited: 4,50,000 × 2/9 = ₹ 1,00,000 to Alok and Sameer each ] Step 3: Prepare Adjustment Entry. Journal Entry:

Particulars	Dr (₹)	Cr (₹)
Tushar’s Capital A/c Dr.	1,00,000
To Alok’s Capital A/c		1,00,000
To Sameer’s Capital A/c		1,00,000
(Being goodwill adjusted through capital accounts in gaining/sacrificing ratio)

 

Final Answer: Debit Tushar, Credit Alok and Sameer with ₹ 1,00,000 each.