Page 70 - DEBKVOL-1

4.2 Double Entry Book Keeping—CBSE XII

• Sacrificing Partners: The partners whose shares have decreased due to change in the profit-sharing ratio
are known as sacrificing partners.
• Gaining Partners: The partners whose shares have increased due to change in the profit-sharing ratio are
known as gaining partners.
• Sacrificing Ratio: The ratio in which one or more partners sacrifice their share in profit in favour of one
of more partners is known as sacrificing ratio.
• Gaining Ratio: The ratio in which one or more partners gain in profit from the other partner or partners
is known as gaining ratio.
Sacrificing/(Gaining) Share = Old Share – New Share.
• Adjustment Required at the Time of Change in Profit-Sharing Ratio:
(i) Adjustment of Goodwill.
(ii) Adjustment of Gain (Profit)/Loss arising from the Revaluation of Assets and Reassessment of Liabilities.
(iii) Adjustment of the Reserves, Accumulated Profits and Losses.
(iv) Adjustment of Capital.
• Reserves, Accumulated Profits and Losses are distributed among the existing partners in their old profit-
sharing ratio and will not be shown in the New Balance Sheet.
When Reserves are to be shown in future or in the New Balance Sheet: Gaining partners compensate the
sacrificing partners for the share of reserves and profits which is proportionate to the share gained.
• Revaluation of Assets and Reassessment of Liabilities at the time of change in profit-sharing ratio: Any
profit or loss arising on such revaluation is shared by the existing partners in their old profit-sharing ratio.
There are two methods of Revaluation of Assets and Reassessment of Liabilities:
1. When revised (changed) values are to be recorded in the books: Revaluation of assets and reassess -
ment of liabilities is passed through Revaluation Account. The gain (profit) or loss on revaluation is
transferred to the old partners’ Capital (or Current) Accounts in their old profit-sharing ratio.
2. When revised (changed) values are not to be recorded: The net effect of revaluation of assets and
reassessment of liabilities is adjusted through Capital (or Current) Accounts of partners. An adjustment
entry is passed based on gain/sacrifice of partner.
Accounting Treatment of Goodwill
A. When Goodwill is adjusted through Partners’ Capital Accounts:
In Case of Fluctuating Capitals In Case of Fixed Capitals
Gaining Partners’ Capital A/cs ...Dr. Gaining Partners’ Current A/cs ...Dr.
To Sacrificing Partners’ Capital A/cs To Sacrificing Partners’ Current A/cs
(In sacrificing ratio) (In sacrificing ratio)
B. When Goodwill is Raised and written off:
In Case of Fluctuating Capitals In Case of Fixed Capitals
Goodwill A/c ...Dr. Goodwill A/c ...Dr.
To Partners’ Capital A/cs To Partners’ Current A/cs
Partners’ Capital A/cs ...Dr. Partners’ Current A/cs ...Dr.
To Goodwill A/c To Goodwill A/c

Accounting Treatment of Existing Goodwill
Goodwill appearing in the Balance Sheet as on the date of reconstitution is written off in the old profit-sharing
ratio unless the partners decide to carry the value in the books of account.
All Partners’ Capital/Current* A/cs ...Dr. [In old ratio]
To Goodwill A/c [With existing book value of Goodwill]
*In case of Fixed Capitals