Dinesh, Ramesh and Suresh are partners in a firm sharing profits and losses in the ratio of 3:3:2. They decided to share the profits equally w.e.f. April 1, 2015. Their Balance Sheet as on March 31, 2016 was as follows:

| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---

Question

Dinesh, Ramesh and Suresh are partners in a firm sharing profits and losses in the ratio of 3:3:2. They decided to share the profits equally w.e.f. April 1, 2015. Their Balance Sheet as on March 31, 2016 was as follows:

| Liabilities | Amount (₹) | Assets | Amount (₹) |
|---|---:|---|---:|
| Sundry Creditors | 1,50,000 | Cash at Bank | 40,000 |
| General Reserve | 80,000 | Bills Receivable | 50,000 |
| Partner's Loan: Dinesh 40,000; Ramesh 30,000 | 70,000 | Sundry Debtors | 60,000 |
| Partners Capital: Dinesh 1,00,000; Ramesh 80,000; Suresh 70,000 | 2,50,000 | Stock | 1,20,000 |
| | | Fixed Assets | 2,80,000 |
| **Total** | **5,50,000** | **Total** | **5,50,000** |

It was also decided that:
1. The fixed assets should be valued at ₹3,31,000.
2. A provision of 5% on sundry debtors be made for doubtful debts.
3. The goodwill of the firm at this date be valued at 4½ years purchase of the average net profits of last five years which were ₹14,000; ₹17,000; ₹20,000; ₹22,000 and ₹27,000 respectively.
4. The value of stock be reduced to ₹1,12,000.
5. Goodwill was not to appear in the books.

Pass the necessary journal entries and prepare the revised Balance Sheet of the firm.

Accepted Answer

> [!TLDR]
> Dinesh and Ramesh each sacrifice 1/24, Suresh gains 2/24. Goodwill of firm ₹90,000, so Suresh pays ₹7,500 and Dinesh and Ramesh receive ₹3,750 each through capital accounts. Revaluation profit ₹40,000 and General Reserve ₹80,000 are shared in old ratio 3:3:2. Closing capitals: Dinesh ₹1,48,750, Ramesh ₹1,28,750, Suresh ₹92,500. Balance Sheet totals ₹5,90,000.

### Concept
A change in profit-sharing ratio among existing partners is treated exactly like an admission — revaluation, transfer of reserves in the old ratio and a goodwill adjustment — except that no partner joins or brings cash. Because goodwill is not to appear in the books, only the net adjustment is passed: the gaining partner's capital is debited and the sacrificing partners' capitals are credited, in the gaining/sacrificing ratio. This is a standard CBSE Class 12 Accountancy change-in-profit-sharing-ratio problem.

### Working Notes
**1. Sacrifice / gain** — compare old 3:3:2 (as /24: 9/24, 9/24, 6/24) with new equal (8/24 each):
- Dinesh: 9/24 − 8/24 = 1/24 (sacrifice)
- Ramesh: 9/24 − 8/24 = 1/24 (sacrifice)
- Suresh: 6/24 − 8/24 = −2/24 (gain 2/24)

**2. Goodwill** — Total profit = 14,000 + 17,000 + 20,000 + 22,000 + 27,000 = ₹1,00,000; average = ₹20,000; goodwill = ₹20,000 × 4½ = ₹90,000.
- Suresh pays 2/24 × ₹90,000 = ₹7,500
- Dinesh receives 1/24 × ₹90,000 = ₹3,750; Ramesh receives 1/24 × ₹90,000 = ₹3,750

**3. Revaluation** — Fixed assets up ₹51,000; Stock down ₹8,000; Provision for doubtful debts 5% of ₹60,000 = ₹3,000. Net profit = 51,000 − 8,000 − 3,000 = ₹40,000, shared 3:3:2 → Dinesh ₹15,000, Ramesh ₹15,000, Suresh ₹10,000.

**4. General Reserve** — ₹80,000 shared 3:3:2 → Dinesh ₹30,000, Ramesh ₹30,000, Suresh ₹20,000.

### Solution

**Journal**

| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---:|---:|
| 2016 Apr 1 | Fixed Assets A/c Dr. | | 51,000 | |
| |   To Revaluation A/c | | | 51,000 |
| | (Increase in value of fixed assets) | | | |
| | Revaluation A/

Particulars	₹	Particulars	₹
To Building (decrease)	10,000	By Land (increase)	20,000
To Provision for Doubtful Debts (increase)	5,000	By Creditors (decrease)	8,000
To Profit transferred to:
A’s Capital A/c (3/5)	7,800
B’s Capital A/c (2/5)	5,200
Total	28,000	Total	28,000

Concept understanding — Admission Partner Adjustments

What does “Admission Partner Adjustments” mean?

1. Revaluation of Assets and Liabilities

2. Treatment of Goodwill

3. Adjustment of Reserves and Accumulated Profits/Losses

4. Adjustment of Capital Accounts

Concept

Working Notes

Solution

Liabilities	Amount (₹)	Assets	Amount (₹)
Sundry Creditors	1,50,000	Cash at Bank	40,000
General Reserve	80,000	Bills Receivable	50,000
Partner's Loan: Dinesh 40,000; Ramesh 30,000	70,000	Sundry Debtors	60,000
Partners Capital: Dinesh 1,00,000; Ramesh 80,000; Suresh 70,000	2,50,000	Stock	1,20,000
		Fixed Assets	2,80,000
Total	5,50,000	Total	5,50,000

Date	Particulars	Debit (₹)	Credit (₹)
2016 Apr 1	Fixed Assets A/c Dr.	51,000
	To Revaluation A/c		51,000
	(Increase in value of fixed assets)
	Revaluation A/c Dr.	11,000
	To Stock A/c		8,000
	To Provision for Doubtful Debts A/c		3,000
	(Decrease in stock and creation of provision for doubtful debts)
	Revaluation A/c Dr.	40,000
	To Dinesh's Capital A/c		15,000
	To Ramesh's Capital A/c		15,000
	To Suresh's Capital A/c		10,000
	(Profit on revaluation transferred to partners in old ratio 3:3:2)
	General Reserve A/c Dr.	80,000
	To Dinesh's Capital A/c		30,000
	To Ramesh's Capital A/c		30,000
	To Suresh's Capital A/c		20,000
	(General reserve transferred to partners in old ratio 3:3:2)
	Suresh's Capital A/c Dr.	7,500
	To Dinesh's Capital A/c		3,750
	To Ramesh's Capital A/c		3,750
	(Goodwill adjusted in partners' capital accounts in sacrificing/gaining ratio)

Particulars	Amount (₹)	Particulars	Amount (₹)
To Stock	8,000	By Fixed Assets	51,000
To Provision for Doubtful Debts	3,000
To Profit transferred to Dinesh (15,000), Ramesh (15,000), Suresh (10,000)	40,000
Total	51,000	Total	51,000

Concept

Working Notes

Solution

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