CHAPTER 4 - Reconstitution of a Partnership : Change in Profit Sharing Ratio
Name of Exam : CUET UG 2023
SECTION : 2 Domain (commerce)
Subject: Accountancy
Chapter: Reconstitution of a Partnership:
Change in Profit Sharing Ratio
CUET UG COMMERCE MOST IMPORTANT MCQ
1 In case of change in profit sharing ratio, if the
question is silent, then accumulated profit or
losses are
(a) distributed
(b) not distributed
(c) adjusted
(d) None of these
(a) distributed
2 Revaluation account is prepared ............. the value of assets.
(a) to revise
(b) not to revise
(c) to distribute
(d) None of these
(a) to revise
3 In case of change in profit sharing ratio, when
revised values are not to be recorded in the books, then steps to be followed are
(i) Pass a single adjustment entry.
(ii) To find share of sacrifice/(gain) by partners.
(iii) Calculation of the net effect of revaluation.
(iv) Calculation of proportional amount of net
effect of revaluation.
(a) (ii) (iii) (iv) (i)
(b) (iii) (ii) (iv) (i)
(c) (iv) (iii) (ii) (i)
(d) None of these
(b) (iii) (ii) (iv) (i)
(Q04 and 05 are based on this information)
A, B and C are partners sharing profits and losses in the ratio of 5 : 4 : 1. If, C acquires 1/5 th share from A, then
4 Calculate new profit sharing ratio.
(a) 5 : 4 : 2
(b) 5 : 4 : 1
(c) 3 : 4 : 3
(d) None of these
(c) 3 : 4 : 3
5 Calculate sacrificing ratio
(a) A sacrifice 1/5
(b) B sacrifice 1/5
(c) C sacrifice 1/5
(d) None of these
(a) A sacrifice 1/5
6 ‘A’, ‘B’ and ‘C’ are partners sharing profits in the ratio of 2:2:1. At the time of reconstitution of firm, they agreed to write-off goodwill which is shown in balance sheet as an intangible asset amounting to 50,000. Journalise it.
(a) Goodwill A/c Dr 50,000
To A’s Capital A/c 20,000
To B’s Capital A/c 20,000
To C’s Capital A/c 10,000
(b) A’s Capital A/c Dr 20,000
B’s Capital A/c Dr 20,000
To Goodwill A/c 40,000
(c) A’s Capital A/c Dr 20,000
B’s Capital A/c Dr 20,000
C’s Capital A/c Dr 10,000
To Goodwill A/c 50,000
(d) A’s Capital A/c Dr 10,000
B’s Capital A/c Dr 20,000
To C’s Capital A/c 30,000
(c) A’s Capital A/c Dr 20,000
B’s Capital A/c Dr 20,000
C’s Capital A/c Dr 10,000
To Goodwill A/c 50,000
7 Calculate net effect of revaluation when revised
values are to be recorded in books.
(i) Stock is to be valued at 10% less (Book value Rs 3,00,000).
(ii) Provision for bad debts is no more required,
(Shown in balance sheet for Rs 4,000).
(iii) An outstanding salary which is unrecorded of
Rs 16,000.
(a) Rs 40,000 profit
(b) Rs 42,000 profit
(c) Rs 42,000 loss
(d) None of the above
(c) Rs 42,000 loss
8 ‘A’ and ‘B’ are partners in a firm. They share their
profits and losses in the ratio of 3 2: . They have
decided that their new profits (losses) sharing ratio
will be 1 1: . At that time, their goodwill is valued at
Rs 30,000. Calculate amount of goodwill which will
be given by B to A.
(a) Rs 2,500
(b) Rs 2,400
(c) Rs 2,800
(d) Rs 3,000
(d) Rs 3,000
9 ‘B’ and ‘C’ were partners sharing profits in the
ratio of 3 : 2. They agreed to share their future
profits in the ratio of 1 1: . At that time, their books
showed the following balances
Profit and Loss A/c (Cr) = Rs 60,000
General Reserve = Rs 40,000
Pass necessary entry at the time of change in
profit sharing ratio.
(a) C’s Capital A/c Dr 10,000
To B’s Capital A/c 10,000
(b) General Reserve A/c Dr 40,000
To B’s Capital A/c 20,000
To C’s Capital A/c 20,000
(c) Profit and Loss A/c Dr 60,000
General Reserve A/c Dr 40,000
To B’s Capital A/c 1,00,000
(d) Profit and Loss A/c Dr 60,000
General Reserve A/c Dr 40,000
To B’s Capital A/c 60,000
To C’s Capital A/c 40,000
(d) Profit and Loss A/c Dr 60,000
General Reserve A/c Dr 40,000
To B’s Capital A/c 60,000
To C’s Capital A/c 40,000
10 ‘A’, ‘B’ and ‘D’ are partners in a firm sharing profits
(losses) in the ratio of 3 : 2 : 1. They change their
ratio into 2 : 1 : 2 for future profits. At that time,
their balance sheet shows the following balances
Investment Fluctuation Reserve = Rs 6,000
Investment = Rs 25,000
Now, the market value of investments’ is Rs 22,000.
Distribute investment fluctuation reserve among
partners.
(a)
Investment Fluctuation
Reserve A/c Dr 6,000
To A’s Capital A/c 3,000
To B’s Capital A/c 2,000
To D’s Capital A/c 1,000
(b)
Investment Fluctuation
Reserve A/c Dr 6,000
To A’s Capital A/c 6,000
(c) A’s Capital A/c Dr 6,000
To B’s Capital A/c 3,000
To D’s Capital A/c 3,000
(d)
Investment Fluctuation
Reserve A/c Dr 6,000
To Investment A/c 3,000
To A’s Capital A/c 1,500
To B’s Capital A/c 1,000
To D’s Capital A/c 500
Investment Fluctuation
Reserve A/c Dr 6,000
To Investment A/c 3,000
To A’s Capital A/c 1,500
To B’s Capital A/c 1,000
To D’s Capital A/c 500
11 A and B are partners in a firm sharing profits in
the ratio of 3 : 2. An extract of their balance sheet
is as follows
Liabilities Amt (Rs) Assets Amt (Rs)
- Investments 40,000
If half of the investments are taken over by A and
B in their profit sharing ratio at book value, what
amount of investments will be shown in revised
balance sheet?
(a) Rs 40,000
(b) Rs 20,000
(c) Rs 10,000
(d) Rs 80,000
(b) Rs 20,000
12 Sacrificing ratio is calculated as
(a) New Ratio – Old Ratio
(b) Old Rato – New Ratio
(c) Old Ratio – Gaining Ratio
(d) Gaining Ratio – Old Ratio
(b) Old Rato – New Ratio
13 Assets are revalued and labilities are reassessed at the time of change in profit-sharnig ratio so that
(a) assets and liabilities are shown at their present values.
(b) gaining partner is not put to an advantage and sacrificing partner is not put to disadvantage and vice-versa.
(c) Both (a) and (b)
(d) assets and liabilities are shown at their market values.
(b) gaining partner is not put to an advantage and sacrificing partner is not put to disadvantage and vice-versa.
14 At the time of change in profit-sharing ratio,
sacrificing ratio is determined so that
(a) assets and liabilities are shown at their present values.
(b) gaining partner is not put to an advantage and sacrificing partner is not put to disadvantage and vice-versa.
(c) gaining partner can compensate the sacrificing partner for the sacrifice of profit share.
(d) assets and liabilities are shown at their current
estimate values.
(c) gaining partner can compensate the sacrificing partner for the sacrifice of profit share.
15 The ratio in which one or more partners of the firm forego, i.e. sacrifice their share of profits in favour of one or more partners of the firm is known as ..... .
(a) sacrificing ratio
(b) gaining ratio
(c) no change in ratio
(d) Either (a) or (b)
(a) sacrificing ratio
16 At the time of change in profit sharing ratio,
general reserve existing in the balance sheet is
transferred to capital accounts of partners in their
(a) sacrificing ratio
(b) gaining ratio
(c) old profit sharing ratio
(d) new profit sharing ratio
(c) old profit sharing ratio
17 Out of the following, which is not a part of change
in the profit sharing ratio?
(a) Determination of sacrificing ratio and gaining ratio
(b) Accounting of goodwill
(c) Accounting of reserves, accumulated profits and
losses.
(d) Dissolution of partnership firm
(d) Dissolution of partnership firm
18 Gaining ratio is calculated as
(a) New Ratio – Sacrificing Ratio
(b) Old Ratio – SacrificingRatio
(c) New Ratio – Old Ratio
(d) Old Ratio – New Ratio
(c) New Ratio – Old Ratio
19 Revaluation account is a …… account in nature.
(a) personal
(b) real
(c) nominal
(d) None of these
(c) nominal
20 At the time of change in profit sharing ratio, the gaining partner is …… and sacrificing partner is…… for the adjustment of goodwill.
(a) credited, debited
(b) debited, debited
(c) credited, credited
(d) debited, credited
(d) debited, credited
21 After reconstitution, the ratio in which all the
partners share future profits and losses is called
(a) new rato
(b) old ratio
(c) sacrificing ratio
(d) gaining ratio
(a) new rato
22 Pass the journal entry to record the increase in the value of assets.
(a) Assets A/c Dr
To Partners’ Capital A/c
(b) Revalution A/c Dr
To Assets A/c
(c) Assets A/c Dr
To Revaluation A/c
(d) Liabilities A/c Dr
To Revaluation A/c
(c) Assets A/c Dr
To Revaluation A/c
23 Write the formula of proportional amount of net effect of revaluation for gaining partner.
(a) Share Sacrificed × Net Effect of Revaluation
(b) Old Share – New Share
(c) Capital × Share of New Partner
(d) Share Gained × Net Effect of Revaluation
(d) Share Gained × Net Effect of Revaluation
24 The steps of treatment of goodwill at the time of change in profit sharing ratio are
(i) Calculate compensation payable by gaining
partner(s) to sacrificing partner(s).
(ii) Pass the adjustment entry.
(iii) Calculate the share gained and share sacrified.
The correct order is
(a) (i), (iii), (ii)
(b) (i), (ii), (iii)
(c) (iii), (i), (ii)
(d) (iii), (ii), (i)
(c) (iii), (i), (ii)
25 In case of depreciation provided on plant and machinery (at the time of change in profit sharing ratio), which account is debited?
(a) Plant and machinery
(b) Revaluation account
(c) Partners’ capital account
(d) None of the above
(b) Revaluation account
26 Machinery replacement fund is transferred to
partners’ capital account at the time of change in
profit sharing ratio.
(a) True
(b) False
(c) Partially false
(d) Partially true
(b) False
27 If the claim on account of workmen’s compensation
is more than the workmen compensation reserve,
which account(s) is/are debited initially?
(a) Workmen compensation reserve
(b) Revaluation account
(c) Both (a) and (b)
(d) None of the above
(c) Both (a) and (b)
28 At the time of change in profit sharing ratio,
advertisement expenditure (deferred revenue) is
…… and partners’ capitals are ……… .
(a) credited, debited
(b) debited, credited
(c) Both (a) and (b)
(d) None of these
(a) credited, debited
29 Investment fluctuation reserve is a reserve created out of profits to meet the …… in …… value of
investments.
(a) rise, book
(b) fall, book
(c) rise, market
(d) fall, market
(d) fall, market
30 A and B are partners in a firm sharing profit and
losses 2 : 3. With effect from 1st April, 2022, they
decided to share profits and loss equally. What will
be B’s gain/sacrifice?
(a) Gain 1/5
(b) Sacrifice 1/5
(c) Gain 1/10
(d) Sacrifice 1/10
(d) Sacrifice 1/10
CUET CH. 4 COMMERCE ACCOUNTANCY PDF DOWNLOAD
Hints & Solutions
1. Reserves, accumulated profits or losses are distributed even if the question is silent because these were earned before
the reconstitution of the firm.
3. Since revised values are not to be recorded in books, so profit or loss on revaluation is adjusted through capital
accounts by passing a single adjustment entry.
4. A’s new share
= 5/10-1/5
= (5-2) /10
= 3/10 ;
B’s new share = 4/10 ;
C’s new share
= 1/10+ 1/ 5
= (1+ 2)/10
= 3/10
5. Sacrificing Share = Old Share - New Share
A =5/10- 3/10 = 2/10 = 1/5 Sacrifice;
B = 4/10- 4/10= Nil;
C = 1/10- 3/10= 2/10 = 1/5 Gain
6. When goodwill appears in the books of firm, it is written-off by debiting all partners capital accounts in their old
profit ratio and crediting goodwill account. Share of partners will be computed as follows
A’s Share = 50 000 × 2/5 = Rs 20000 ;
B’s Share = 50 000 × 2/5
= Rs 20000 ;
C’s Share = 50 000 × 1/5 = Rs10,000.
7. To ascertain the effect of revaluation, we will prepare revaluation account in the following manner
Revaluation Account
Particulars Amt (Rs) | Particulars Amt(Rs)
To Stock 30,000 By Prov. B/D 4,000
To o/s Salary 16000. By Loss traf. 42000
T= 46000. T= 46000
* By Loss on Revaluation to be Transferr
to Partners’ Capital A/c 42,000
8. Sacrifice (Gain) Ratio = Old Ratio – New Ratio
A’s Sacrificing Ratio = 3/5- 1/2
=(6-5)/10 Sacrifice ;
B’s Sacrificing Ratio = 2/5 - 1/2
= (4 - 5)/10
= 1/10 (Gain)
So, ‘B’ will give to ‘A’ = 30 000 × 1/10
= Rs 3,000
9. Since, partners are changing their profit sharing ratio so, their all (accumulated) profits or losses will be distributed among
them in their old ratio.
So,
Profit and Loss A/c = 60,000
(+) General Reserve = 40,000
Total Accumulated Profit = 1,00,000
Distributed in ‘B’ and ‘C’ in old ratio
B = 100 000 × 3/5 = RS 60000 ;
C = 100 000 × 2/5 = Rs 40000.
10. Investment fluctuation reserve is created as a safeguard against loss due to fluctuation in market price of investments. In the given example, Rs 3,000 (25,000 − 22,000) will be used to cover loss due to fall in the price of investments and the balance Rs 3,000 will be distributed among partners in their old ratio.
11. Investments = 40,000 − 50% of 40,000 (Taken over by partners) = Rs 20,000
26. Machinery replacement fund is not transferred because it is in the nature of accumulated depreciation and not in the nature of accumulated profits.
30. B’s Sacrifice/Gain = Old Ratio − New Ratio
= 3/5 - 1/2 =1/10
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