Page 53 - MAZOO EBOOK 1_Neat

Change in profit sharing ratio

One of the forms of reconstitution of the firm is Change in Profit Sharing Ratio among Existing

Partners. Here there is no change in the partners carrying on the business of the firm. The only

change is the profit sharing ratio among existing partners.

Example - Profit and losses ratio is for 3:2:1, for A, B and C respectively. From 1st April 2018,

they decide to share profit and losses equally. Value of Goodwill of the firm is $ 24000. Calculate

sacrificing and gaining ratio. Also, pass necessary journal entry.

Old ratio: 3:2:1

New ratio: 1:1:1

Sacrificing or gaining ratio= Old ratio – New ratio

A’s share= 3/6 – 1/3 = -1/6 (sacrifice)

B’s share= 2/6 – 1/3 = Nil

C’s share= 1/6 – 1/3 = 1/6 (Gain)

Goodwill of the firm= Rs 24000

A will receive for goodwill = 24000*1/6 = Rs 4000

C will give for goodwill =24000*1/6 = Rs 4000 (htt44)

1.7 Financial statements of a company

There are four main financial statements. They are: (1) balance sheets; (2) income statements;

(3) cash flow statements; and (4) statements of shareholders' equity. Balance sheets show what

a company owns and what it owes at a fixed point in time.

52