“Change in Profit Sharing Ratio among the Existing Partners,” explains the reconstitution of a partnership when partners decide to alter their profit-sharing ratio without admission or retirement. The chapter focuses on key concepts such as sacrificing and gaining ratio, treatment of goodwill, revaluation of assets and liabilities, and distribution of reserves. It teaches students how to make necessary journal entries and adjustments in capital accounts to maintain fairness among partners. This chapter forms a crucial part of partnership accounting and strengthens the foundation for advanced accounting practices.

Multiple Choice Questions and Answers

1. A and B partners in a firm sharing profits and losses in the ratio of 3 : 1. With effect from 1st April 2023, they agreed to share profits in the ratio of 2 : 1. Due to the change in profit sharing ratio, B’s gain or sacrifice will be:
a) Sacrifice1/12
b) Gain1/3
c) Gain1/12
d) Sacrifice1/3

2. Red, Blue and White were partners in a firm sharing profits in the ratio of 1 : 2 : 2. They decided to share future profits in the ratio of 7 : 5 : 3 with effect from 1st April 2023. Their Balance Sheet as on that date showed a balance of Rs.22,500 in Deferred Revenue Expenditure Account. The account to be debited respectively to the capital accounts of Red, Blue and White for writing off Deferred Revenue Expenditure will be:
a) ₹ 7,500; ₹ 7,500 and ₹ 7,500
b) ₹ 10,500; ₹ 7,500 and ₹ 4,500
c) ₹ 11,250; Nil and ₹ 11,250
d) ₹ 4,500; ₹ 9,000 and ₹ 9,000

3. A, B and C were partners sharing profits and losses in the ratio of 7 : 3 : 2 from 1st January 2023they decided to share profits and losses in the ratio of 8 : 4 : 3. Goodwill is valued for Rs. 1,20,000. In Adjustment entry for goodwill:
a) Cr. A by ₹6,000; Dr. B by ₹2,000; Dr. C by ₹4,000
b) Dr. A by ₹6,000; Cr. B by ₹4,000; Cr. C by ₹2,000
c) Cr. A by ₹6,000; Dr. B by ₹4,000; Dr. C by ₹2,000
d) Dr. A by ₹6,000; Cr. B by ₹2,000; Cr. C by ₹4,000

4. Which of the following is shown in the debit side of the partners’ capital account?
a) P/L Appropriation Account (Profit)
b) Loss on revaluation
c) Profit on revaluation
d) Profit and Loss Account (Cr.balance)
Answer:
b) Loss on revaluation

5. A, B and C are partner sharing profits in the ratio of 1 : 2 : 3. On 1 April 2023 they decided to share the profits equally. On the date there was a credit balance of₹ 1,20,000 in their Profit and Loss Account and a balance of ₹ 1,80,000 in General Reserve Account. Instead of closing the General Reserve Account and Profit and Loss Account, it is decided to record an adjustment entry for the same. In the necessary adjustment entry to give effect to the above arrangement:
a) Dr. A by₹ 50,000; Cr. B by ₹ 50,000
b) Cr. A by₹ 50,000; Dr. B by ₹ 50,000
c) Dr. A by₹ 50,000; Cr. C by ₹ 50,000
d) Cr. A by₹ 50,000; Dr. C by ₹ 50,000
Answer With Explanation:
Step 1: Old and New Ratios
New Ratio = 1 : 1 : 1
⇒ Each partner gets 1/3
Old Ratio = A : B : C = 1 : 2 : 3
⇒ Sum = 6
⇒ A = 1/6, B = 2/6, C = 3/6
Step 2: Calculate Gain or Sacrifice
New Share − Old Share = Gain or Sacrifice

Step 3: Total Amount to be Adjusted

• Total of P&L A/c = ₹1,20,000
• General Reserve = ₹1,80,000
• Total = ₹3,00,000

So, we distribute this ₹3,00,000 based on the old ratio (1:2:3) but the new ratio is equal, so we need to adjust the difference.

Step 4: Share in Old vs New Ratios
C’s New Share = ₹1,00,000
⇒ Loss = ₹50,000
A’s Old Share = 1/6 of ₹3,00,000 = ₹50,000
A’s New Share = 1/3 of ₹3,00,000 = ₹1,00,000
⇒ Gain = ₹50,000
B’s Old Share = 2/6 of ₹3,00,000 = ₹1,00,000
B’s New Share = ₹1,00,000
⇒ No gain/loss
C’s Old Share = 3/6 of ₹3,00,000 = ₹1,50,000

Step 5: Adjustment Entry
Since A gains ₹50,000 and C sacrifices ₹50,000, the adjustment entry will be:
Dr. C ₹50,000
     Cr. A ₹50,000

Correct Answer:
d) Cr. A by ₹ 50,000; Dr. C by ₹ 50,000

6. At the time of admission of a new partner, the new partner acquires his share from the old partners in the:
a) Old ratio
b) Gaining Ratio
c) New Ratio
d) Sacrificing ratio
Answer: d) Sacrificing ratio

7. A, B and C were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. The partners decide to share future profits and losses in the ratio of 2 : 2 : 1. Each partner’s gain or sacrifice due to change in ratio will be:
a) Sacrifice A3/30 ; Gain B 1/30 ; Gain C 2/30
b) Gain A2/30 ; Gain B 1/30 ; Sacrifice C 3/30
c) Gain A1/30 ; Gain B 1/15 ; Sacrifice C 1/10
d) Sacrifice A3/30 ; Gain B 2/30 ; Gain C 1/30
Answer: d) Sacrifice A3/30 ; Gain B 2/30 ; Gain C 1/30

8. Amit, Govind and Kiran were sharing profits in the ratio of 5 : 3 : 2. From 1st April 2021, they decided to share the profits equally. Goodwill of the firm was valued₹ 2,40,000.
For adjustment of Goodwill, Kiran’s Capital Account will be:
a) Credited with₹ 32,000
b) Debited with₹ 8,000
c) Credited with₹ 8,000
d) Debited with₹ 32,000
Answer with Explanation
Given:
Good will of the firm = ₹ 2,40,000
Old Profit Sharing Ratio = 5 : 3 : 2
⇒ Amit = 5/10, Govind = 3/10, Kiran = 2/10
New Profit Sharing Ratio = Equal sharing = 1 : 1 : 1
⇒ Amit = 1/3, Govind = 1/3, Kiran = 1/3

Step 1: Calculate the Sacrificing or Gaining Ratio
$$\text{Sacrifice or Gain} = \text{Old Share} – \text{New Share}$$

• Amit is sacrificing: 0.167
• Govind is gaining: 0.033
• Kiran is gaining: 0.133

Step 2: Calculate Goodwill adjustment for Kiran

Kiran is gaining 0.133 share. So, Kiran must pay goodwill for the gain.
Goodwill amount=Gain share × Total Goodwill
=0.133×₹2,40,000=₹31,920≈₹32,000

Since Kiran is gaining, Kiran’s Capital Account will be debited (Kiran pays goodwill to sacrificing partners).

Answer:
d) Debited with ₹ 32,000

9. X, Y and Z were partners sharing profits in the ratio 2 : 3 : 4 with effect from 1st January, 2023 they agreed to share profits in the ratio 3 : 4 : 5. Each partner’s gain or sacrifice due to change in the ratio will be:
a) X Gain1/36 ; Y Sacrifice 1/36 ; Z Nil
b) X Sacrifice1/36 ; Y Nil; Z Gain 1/36
c) X Gain1/36 ; Y Nil; Z Sacrifice 1/36
d) X Sacrifice1/36 ; Y Gain 1/36 ; Z Nil
Answer: c) X Gain1/36 ; Y Nil; Z Sacrifice 1/36

10. A, B and C are sharing profits and losses in the ratio 5:3:2 with effect from 01/04/2013 they decide to share profit and losses equally. Calculate B partner’s gain share
a) 1/20 share
b) 1/25 share
c) 1/30 share
d) 1/10 share
Answer:
Given:
Old Profit Sharing Ratio (A:B:C) = 5 : 3 : 2
Total parts = 5 + 3 + 2 = 10
⇒ B’s old share = 3/10
New Profit Sharing Ratio = Equal sharing = 1 : 1 : 1
⇒ B’s new share = 1/3

Step 1: Calculate B’s gain or sacrifice
$$\text{Gain or Sacrifice} = \text{New Share} – \text{Old Share}$$
$$= \frac{1}{3} – \frac{3}{10} = \frac{10}{30} – \frac{9}{30} = \frac{1}{30}$$
Since the value is positive, B is gaining 1/30 share.

Answer:
c) 1/30 share

Answer of Chapter 2 Change in Profit Sharing Ratio