Question

The firm of Amish, Nitish and Misha, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for some years. Misha wanted that she should get equal share in the profits with Amish and Nitish and she further wished that the change in the profit sharing ratio should come into effect retrospectively for the last three years. Amish and Nitish had agreement for this.
The profits for the last three years were: 2021–22 ₹ 1,15,000; 2022–23 ₹ 1,24,000; 2023–24 ₹ 2,11,000
Show adjustment of profits by means of a single adjustment journal entry. Show your working clearly.

Hint:

For retrospective changes, use total profit and compute shares in old vs new ratio to find gain or sacrifice.

Answer 1

Step 1: Total profit across 3 years: ₹ 1,15,000 + ₹ 1,24,000 + ₹ 2,11,000 = ₹ 4,50,000
Step 2: Old Ratio: 2:2:1; New Ratio: 1:1:1
Distribution based on old ratio:
Amish: (2/5) * ₹ 4,50,000 = ₹ 1,80,000
Nitish: ₹ 1,80,000
Misha: ₹ 90,000
Distribution based on new ratio:
Each partner: (1/3) * ₹ 4,50,000 = ₹ 1,50,000
Adjustment:
Amish: ₹ 1,80,000 (old) - ₹ 1,50,000 (new) = ₹ 30,000 loss
Nitish: ₹ 1,80,000 (old) - ₹ 1,50,000 (new) = ₹ 30,000 loss
Misha: ₹ 90,000 (old) - ₹ 1,50,000 (new) = ₹ 60,000 gain
Journal Entry:
Amish’s Capital A/c Dr. ₹ 30,000
Nitish’s Capital A/c Dr. ₹ 30,000
To Misha’s Capital A/c ₹ 60,000