Case Study No.1: 3:-Change IN Profit Sharing Ratio Among Existing Partners Case Study Based Questions

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CHAPTER 3:- CHANGE IN PROFIT SHARING RATIO AMONG

EXISTING PARTNERS

CASE STUDY BASED QUESTIONS:-


CASE STUDY NO.1
Bhavna and Rajiv were partners in a partnership firm carrying on a restaurant in
CASE STUDY NO.1

Kolkata. Bhavna noticed that a lot of food is left at the end of the day. To avoid
wastage, she suggested that it can be distributed to the needy. Rajiv wanted that
it should be mixed with the food being served in the next day. Rajiv then give a
proposal that if his share in the profit increased, he will not mind free distribution
of leftover food. Bhavna happily agreed. So, they decided to change their profit-
sharing ratio 1:2 with immediate effect. On that day revaluation of assets and
reassessment of liabilities was carried out that resulted into again of Ra. 18,000.
On that date the goodwill of the firm was valued at Rs.1,20,000.
Based on the above information, you are required to answer the following
questions:
1 Sacrifice/Gain of Bhavna and Rajiv will be
A.Bhavna sacrifice 1/6,Rajiv Gain 1/6
B. Bhavn Gain 1/6,RajivSacrifice 1/6
C.Only Bhavna gains 1/6
D.Only Rajiv Sacrifice 1/6
2 At the time of change in Profit Sharing ratio , gaining partner capital account is
…………………… and sacrificing partner is......................for adjustment of Goodwill.
A.Credited, Debited
B.Debited,Credited
C.Increase,Decrease
D.Decreased , Credited
CASE STUDY NO.2
Joseph and Monu were partners in a firm carrying on a tiffin service in Mumbai.
Joseph noticed that a lot of food is left at the end of the day. To avoid wastage,
she suggested that it should be distributed to the needy. Monu wanted that it
should be mixed with the food being served the next day. Monu then gave a
proposal that if his share in the profit is increased, he will not mind free
CASE distribution of left over food. Joseph happily agreed. So they decided to change
STUDY their profit sharing ratio to 2:3 with immediate effect. On that date, revaluation of
NO.2 assets and reassessment of liabilities was carried out that resulted into a profit of
₹8,000. On that date, the goodwill of the firm was valued as ₹30,000.

KVS ZIET BHUBANESWAR 12/10/2021 Page 1


1 Profit on revaluation will be
(A) Debited to capital account of partners in 2:3
(B) Debited to capital account of partners in 1:1
(C) Credited to capital account of partners in 2:3
(D) Credited to capital account of partners in 1:1
2 Sacrifice/ Gain of Joseph and Monu will be:
(A) Joseph sacrifice 1/10, Monu gains 1/10
(B) Monu sacrifice 1/10, Joseph gains 1/10
(C) Only Joseph gain 1/10
(D) Only Monu sacrifice 1/10
3 At the time of change in profit sharing ratio, gaining partner capital is
and Sacrificing partner is _ for adjustment of goodwill.
(A) Credited, Debited
(B) Debited, Credited
(C) Increased, Decreased
(D) Decreased, Credited
4 The journal entry for adjustment of goodwill will be
(A) Monu’s capital A/c Dr. 30,000
To Joseph’s capital A/c 30,000
(B) Joseph’s capital A/c Dr. 15,000
To Monu’s capital A/c 15,000
(C) Monu’s capital A/c Dr. 3,000
To Joseph’s capital A/c 3,000
(D) Joseph’s capital A/c Dr. 27,000
To Monu’s capital A/c 27,000

CASE STUDY NO.3


Shabir, David and Charu were partners in a firm supplying school uniforms who
CASE shared profits in the ratio of 5:3:2. Shabir suggested to start supplying low cost
STUDY school uniforms to the students who belonged to low income group and admitted

KVS ZIET BHUBANESWAR 12/10/2021 Page 2


NO.3 to the private schools of the city as per the provisions of Right to Education Act
2009. On 1stApril, 2021 David requested to increase the share of profit of Charu, a
specially abled partner having good knowledge of cost-reduction methods. Shabir
agreed to it and the new profit sharing ratio was decided2:5:3. For this purpose it
was agreed that the goodwill is valued at ₹76,000. The stock (book value
₹40,000) was to be depreciated by 8%. Creditors amounting to ₹900 not likely to
be claimed. Liability on account of workmen compensation amounted to ₹8,000.
Investments (book value ₹38,000) were revalued at ₹40,000.
1 Loss on revaluation will be
(A) ₹9,300
(B) ₹8,300
(C) ₹7,300
(D) ₹6,300
2 Shabir’s sacrificing ratio will be
(A) 4/5
(B) 3/10
(C) 2/10
(D) 1/10
3 David and Charu will compensate Shabir for adjustment for goodwill on account of
change in profit sharing ratio by
(A)
₹12,800
(B)
₹13,900
(C)
₹22,800
(D) ₹23,900
4 Decrease in value of stock by ₹3,200 will be
(A) Debited to revaluation A/c
(B) Credited to revaluation A/c
(C) Debited to goodwill A/c
(D) Credited to partner’s capital A/c
CASE STUDY Q.NO.4
CASE Arman, Sharvan and Chintan are partners sharing profits and losses in the ratio of
STUDY 5:3:2. Arman is a marketing person and does not understand the accounting
Q.NO.4 issues. Therefore, when they discussed to share future profits and losses equally,
he wanted to understand in concrete terms the profit share he will have to forego
and whether he will be compensated for the loss in profit share or not. If he will
be compensated, what will be the amount of compensation and how it will be
calculated? He was clarified that for the loss of profit share, he will be paid
compensation in the form of goodwill calculated on an accepted principle of
goodwill valuation.
Goodwill was to be valued at 3 years’ purchase 5 years’ average profit. Profits for
the last 5 years were 1,20,000, 1,20,000 , 1,50,000 , 1,10,000 and
1,00,000. Based on the above information, choose the option to the questions.
1 Gain or sacrifice of Sharvan and Chintan due to change in the profit sharing will be

a. Sharvan’s gain = 1/30 ; Chitntan’s sacrifice = 4/30


b. Sharvan’s sacrifice = 1/30 ; Chitntan’s gain = 5/30
c. Sharvan’s gain = 1/30 ; Chitntan’s gain = 4/30
d. Sharvan’s gain = 5/30 ; Chitntan’s sacrifice = 5/30

2 Value of Goodwill is

a. 3,00,000 b. 3,60,000

c. 3,72,000 d. 3,50,000
3 Sharvan and Chintan will compensate Arman by paying goodwill as
a. . 12,000 and 48,000 respectively
b. 24,000 and 24,000 respectively
c. 30,000 each
d. 60,000 each

CASE STUDY Q.NO.5


CASE Read the passage below and answer the questions given:
STUDY Mohan and Sohan, two college friends started a restaurant business in partnership
Q.NO.5 sharing profit and loss in the ratio of 3:2 in the year 2019. Mohan also had a
family business of garments, which he took over after his father's death. As a
result, he devoted less time to the restaurant. Sohan, being his best friend
understood this and supported him fully.
However, in the year 2020, due to Covid-19, the restaurant business slowed
down Sohan approached Mohan and suggested that they share profits equally.
Mohan readily agreed to it.
The Goodwill of the firm was valued at Rs. 30,000. Also, there is a Workmen
Compensation Reserve and General Reserve of Rs. 90,000 and Rs.
12,000respectively.
1 What single adjusting entry will be passed for goodwill adjustment?
(a) Debit Sohan and Credit Mohan by Rs 3.000
(b) Debit Mohan and Credit Sohan by Rs 3.000
(c) Debit Mohan and Credit Sohan with Rs. 300
(d) Debit Sohan and Credit Mohan with Rs. 300
2 What journal entry will be passed in case there is a claim on Workmen
Compensation Reserve of Rs. 45,000 ?
(a) Workmen Compensation Reserve A/c Dr. 90,000
To Mohan's capital A/c 54,000
To Sohan's capital A/c 36,000
(b) Workmen Compensation Reserve A/c Dr. 45,000
To claim on Workmen Compensation Reserve 45,000
(c) Sohan's capital A/c Dr. 9000
To Mohan's capital A/c 9000
(d) Workmen Compensation Reserve A/c Dr. 90,000
To claim on Workmen Compensation Reserve A/c 45,000
To Mohan's capital A/c 27,000
To Sohan's capital A/c 18,000
3 What journal entry will be used for General Reserve?
(a) General reserve A/c Dr. 12,000
To Mohan's capital A/c 6,000
To Sohan's capital A/C 6,000
(b) General reserve A/c Dr. 12,000
To Mohan's capital A/C 7,200
To Sohan's capital A/C 4,800
(c) Mohan's capital A/C Dr. 7,200
Sohan's capital A/c Dr. 4,800
To General reserve A/c 12,000
(d) Sohan's capital A/C Dr. 1200
To Mohan's capital A/C 1200
ANSWER KEY
CASE STUDY NO.1
Q.NO ANSWER
1 A
2 B
CASE STUDY NO.2
1
(D) Credited to capital account of partners in 1:1
2 (A) Joseph sacrifice 1/10, Monu gains 1/10
3 (B) Debited, Credited
4 (C) Monu’s capital A/c Dr. 3,000
To Joseph’s capital A/c 3,000

CASE STUDY NO.3


1
(B) ₹8,300
2 (B) 3/10
3 (C) ₹22,800
4 (A) Debited to revaluation A/c

CASE STUDY NO.4


1 C
2 B
3 A

CASE STUDY NO.5


1 A
2 D
3 B
PREPARED BY THE PGTs ( COMMERCE ) OF BHUBANESWAR,
GUWAHATI, KOLKATA, RANCHI, SILCHAR AND TINSUKIA REGIONS.

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