Question

Jayant, Vijayant and Anant were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. With effect from 1st April, 2024, they decided to share the profits in the ratio of 5 : 3 : 2. For this purpose, the goodwill of the firm was valued at 6,00,000. The partners decided to treat goodwill without opening goodwill account.
By what amount will the partners’ accounts be debited or credited?

• A. Debit Anant by 6,00,000 and Credit Vijayant by 6,00,000
• B. Debit Vijayant by 6,000 and Credit Anant by 6,000
• C. Debit Vijayant by 20,000 and Credit Anant by 20,000
• D. Debit Anant by 20,000 and Credit Vijayant by 20,000

Hint:

When profit-sharing ratio changes and goodwill is adjusted through partners' capital accounts, always debit the gaining partner and credit the sacrificing partner based on the amount of goodwill.

Answer 1

The Correct Option is D

Step 1: Old Ratio = 3 : 2 : 1 \(\Rightarrow\) Jayant = \( \frac{3}{6} \), Vijayant = \( \frac{2}{6} \), Anant = \( \frac{1}{6} \)
Step 2: New Ratio = 5 : 3 : 2 \(\Rightarrow\)Jayant = \( \frac{5}{10} \), Vijayant = \( \frac{3}{10} \), Anant = \( \frac{2}{10} \) 
Step 3: Gain or Sacrifice = Old Share - New Share: 
Jayant: \( \frac{3}{6} - \frac{5}{10} = 0 \) (No change) 
Vijayant: \( \frac{2}{6} - \frac{3}{10} = \frac{10 - 9}{30} = \frac{1}{30} \) (Sacrifice) 
Anant: \( \frac{1}{6} - \frac{2}{10} = \frac{5 - 6}{30} = -\frac{1}{30} \) (Gain) 
Step 4: Goodwill of the firm = 6,00,000 \(\Rightarrow\) Value of 1 share = \( \frac{1}{30} \times 6,00,000 = 20,000 \) 
Step 5: Since Vijayant is sacrificing and Anant is gaining, Anant should compensate Vijayant. 
The entry is: 
Anant's A/c Dr. & 20,000 
To Vijayant's A/c & 20,000