Change in Profit – Sharing Ratio TS Grewal Solutions: Class 12 [CBSE]

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BookTS Grewal Accountancy
Class12
Chapter4 – Change in Profit – Sharing Ratio Among The Existing Partners
Volume1

TS Grewal Class 12 Solutions Chapter 4

TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4
TS Grewal Class 12 Solutions Chapter 4

TS Grewal Class 12 Chapter 4 – Change in Profit – Sharing Ratio Among The Existing Partners

In a partnership, partners might decide to change their profit-sharing ratio due to various reasons like a partner’s increased contribution, change in responsibilities, or other agreements. TS Grewal Class 12 Chapter 4 explains the accounting treatment for such changes.

Change in Profit-Sharing Ratio

When partners decide to change their existing profit-sharing ratio, it implies a mutual agreement among them. The changed ratio can either be a sacrifice or a gain for a partner.

Definition: The difference between the old and new profit-sharing ratio is termed as sacrificing or gaining ratio.

Sacrificing and Gaining Ratio

  • Sacrificing Ratio = Old Ratio – New Ratio
  • Gaining Ratio = New Ratio – Old Ratio

Example: If A and B are partners sharing profits in the ratio of 3:2 and they decide to share profits equally, then:

A’s Sacrificing Ratio = (3/5 – 1/2) = 1/10
B’s Sacrificing Ratio = (2/5 – 1/2) = -1/10 (negative indicates a gain)

Accounting Treatment of Change in Ratio

When the profit-sharing ratio changes, certain accounts like goodwill, reserves, and accumulated profits/losses need adjustments.

a. Treatment of Goodwill

When there’s a change in the profit-sharing ratio, the gaining partner must compensate the sacrificing partner for their share of the goodwill.

Journal Entry:

Gaining Partner’s Capital A/c Dr.
To Sacrificing Partner’s Capital A/c

b. Treatment of Reserves and Accumulated Profits or Losses:

Before the change in the profit-sharing ratio, any undistributed reserves or accumulated profits/losses are distributed among the partners in their old ratio.

Journal Entry for Reserves:

Reserve A/c Dr.
To Partner’s Capital A/c (Distributed in the old ratio)

Journal Entry for Accumulated Profits:

Profit and Loss A/c Dr.
To Partner’s Capital A/c (Distributed in the old ratio)

Important Notes

  • The total of the sacrificing ratios should always equal the total of the gaining ratios.
  • Goodwill adjustments should only be made when there is a change in the profit-sharing ratio and not when a new partnership agreement is formed without any changes to the ratio.
  • Ensure to update the capital accounts of the partners with their respective shares after adjustments.

Change in Profit Class 12 TS Grewal Solutions PDF Download

TS Grewal’s Accountancy book is a popular textbook used by students in Class 12th studying Commerce stream. It is known for its clear and concise explanations of accounting principles and practices. As previously mentioned, using TS Grewal Class 12 Solutions can make your studies more effective and productive. In order to make your studies more convenient and productive for you, we have presented you with Change in Profit Class 12 TS Grewal Solutions PDF for free.

If you want to download the pdf solution, then you can click on the download button given below. The download button will take you to a new page, where you can easily download your TS Grewal Class 12 Solutions PDF for absolutely free of cost.

Conclusion

In conclusion, this was your TS Grewal Class 12 Solutions Chapter 4: Change in Profit – Sharing Ratio Among the Existing Partners. This chapter offers a clear insight into how partners’ accounts are adjusted when there’s a change in their sharing ratio. Understanding the concepts of sacrificing and gaining ratios is crucial for appropriate adjustments. Practice is key; the more problems you solve, the clearer these concepts will become. If you have found our solutions helpful, then make sure share with your friends.

FAQs

Why might partners decide to change their profit-sharing ratio?

Partners might decide to change their ratio due to varied contributions, changes in roles and responsibilities, or any other mutual agreement.

What’s the difference between the sacrificing and gaining ratio?

The sacrificing ratio is the difference between the old and new ratio indicating the portion a partner is sacrificing, while the gaining ratio is the extra portion a partner is gaining due to the change.

How is goodwill affected by the change in the profit-sharing ratio?

The gaining partner compensates the sacrificing partner for their share of the goodwill when there’s a change in the ratio.

How are accumulated profits and reserves treated when the profit-sharing ratio changes?

Before the change in ratio, reserves or accumulated profits/losses are distributed among the partners in their old ratio.

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