CHAPTER-2.

partners]
[change in PSR
amoung existing

⑪ partners?
Why PSR is
changed amoung existing
is one to in
capital contribution.
is due to
change 4

change my time participation in

Management.
② adjustments are
What required to be done when
in PSR:
change
is calculation of Ratio
is
sacrificing $ gaining
for-good will
Accounting
is Treatment A -> Reserves 9 Accumulated profits.
Accounting
(ix) Accounting for -> Revaluation of Assets a Reassessmentof liab-
IV) Adjustment is capitals.

(I) calculation Ratio

of
sacrificing Ratio &
Gaining
is
sacrificing patto-Rat New
Ratto S
=>

Always positive

his
Gaining Ratto -

(* Mew
Ratto
S
=>
Always Negative

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 ②

(1) for
Accounting Goodwill

is
man
of win: -

It is the value
of the
reputation of a firm
↑
which enables the firm to each more profits
A
in comparison to profit
earned other
by
the
in
firm same
industry.

is agoodwill in
purchased Good will self woodwill
generated

ii) Goodwill=
is woodwill=

precuase (-) Net tests. value depends

consideration
↓
on yaler's judgement
(Assets-liab)
z

iii) Itarises on purchase ii) It is

generated over
of a business. a
long period of time.

(iii) It is I
recorded in BOOKS is it wisecorded in

of Accounts. (Because Books of Accounts. (Because

consideration is paid for its no consideration paid for it)

ciys shown in-Balance sheet(iv) Notshown in-BIs.

(Intangible Assets)

1) Amortised -> As earliest (X) Not Amortised.

tr

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usefull life)
 ⑬

(iii) mettvation
of
will
in

(A) thelage profitmethod

ID) tugprofit
weighted method
c) Super profitmethod
(D) Capitalisation method.

*)
Average
methodo-

Step-1)- write down the

prfits of past
graus.
2e
# 2023-2
Net profits XX xx XX

step: 2) - make adjustments in PENS:

is Abnormal income -> Deducted ⑳a seene

ii) Abnormal Loss - Added pack XX XX XX

ii) IndirectIncome -> Deducted. ** (xx) (xx]

(Income - other than

Business Income) w - .

XX
Adjusted profits XX xx
-

Step-1): calculate
tog A tejusted profits -

as re
Adjusted
a

Step-M): Goodwill=
Ang Adjusted (X) No. A years
profits to purchase
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(From step-3) Leein
 ⑭

(B) evening
profitmethod 2

Step-1)- write down the

prfits of past
years.
-22
Net profits XX
23 XX

step: 2) - make Adjustments in PENS:

is Abnormal income -> Deducted ⑳a seene

ii) Abnormal Loss - Added pack XX XX XX

iii) IndirectIncome t Deducted. ** (xx) (xx]

(Income - other than

Business Income)

XX
Adjusted profits XX XX
-

Step-pI ate weighted

its: -

⑪ ② ③ 0 (x3)
=

-
year -
weights, Adjusted provits(step 2) -
Total Product

·xxx
!
2021-22 lowest weightXx
2022-23 xx x x

3 xXx
2023-24 Highestweight xx
-

*
⑧
Step-14): Calculate Aug. A weighted adjusted profits -

God
as get the

Step-15): weighted Aug. Axisted

Goodwill- (X) No. A years
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profits to purchase
t
Given in
awestn
(From step-4)
 ⑤

1 method 8-
profit

(step-3)
tug djusted profit
Step-1) calculate

weighted try. Adjusted profit (step-4)

I
discussed.
Already
Step-(2) calculate
Normal profit

Normal
Provit
-

E
Capital
Invested Xite.t
A Return

-
NOTE:

capital Invested/capital Employed/Net Assets -

(i) Assets -

rial-

⑧
(iis capital - Reserves

Step-131 super profit

a

super profit Avg

=
tel profit -
Normal Prot

Step-Me at
goodwill:
modwill -
Superposit x No.d-years
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↓
Step-3) (wiverin questin)
 ⑥

(D) Eisation
methods-

Capitalisation of bug prifit capitalisation of super profit

Step-9) calculate "capitalised value,

- -x-
of tug. profit

stug profit x w
Normal Rate of Return (
Step- R) value of Actual Capital --

Employed.
Step-BI Goodwill - Goodwill I

capitalised value of
[S
tug
I
ProfitSuper profit x
Normal Rate
S
Actual capital Employed A Rettr

(iv) Goodwill
Accounting A
treatment
partners)
I when change in Psi
among existing

Step-a calculate
goodwill (By apply above methods).

Goodwill
Step-(2) paymentof by gaining
Secificinger
partner
to

I
od1
-
mod
L2 -

Ne ↓
Goodwill paid Godwill paid
by using by using -
raised
=
sacrificing gaining
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I Goodwill
Ratt & they write not
 ⑦

method-A): Goodwill paid by using

ratt
sacrificing I
gaining

Step 1:Calculate goodwill Amount

<By using applicable method

Step-R):calculate sacrifice Ratio.

gaining a

Jounel
Step-BI: entry:
-

engaumau
as re
a

As capital AC br [GoodwillX Gaining Ratto]

To BIs capital Al [Goodwill x Sacrifice Ratio]

(Adjustment for goodwill due to

change in
PER)

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method2. paid
- -
Goodwill
by using- writerff),
<Goodwill raised of them

Step Goodwill
1:Calculate

Step-(2): -entry
-

195 Goodwill ACIV

to
partners capit Ac*
Goodwill raised in old PSR)

*
is partners capital A
to Gndwoll Al
(Godwill write offen New PSR)

* partners MC
cullent - incase firm follow
Fixed capital method.

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 ⑨

(1) Accounting of
treatment
N
Reserves & Accumulated profits/Loss
(In case in PSR
change among
existing partners)

Reserve Reserve
I I

piccumulated piccumulated
Profit/loss Profit/loss
Y ↓
Transferred Not transferred
to
capital te Capital AK
↓
I pass an adjustment
entry with the
TIF OF TIF OF help of sacrifice
Reserve
I
Accumulated a gaining ratto.
and will
Accumulated loss.
(same as

profit

->

Reserve AC

PGLAl
->
Dr

Du
gogeentignilgangaumaa e

->
W.C. Reserve AK Dr (NOTE-1) As capital AC Dr [Reserve* Gaining Ratto]
x

*
-> I.F. Reserve AI Dr (NOTE-2) To BIS capital Ale [Reserve] x Sacrifice Ratio]
*
to old partners capital (Adjustmentfor Reserve due to
change in
PER)
(in old PSR)

Reserve:
old partners cap. AK DV (01dP) General Reserve
H) PG2 A/c (CreditBull
TO P&L Al
4) Other Reserves
To Deffered 7 PSL AK (DebitBal

5)
Revenere Deffered Revenue ExpAK-
NetReserve
EXP. Al
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(Eg. Advertisement
Suspense Ac
-

&
 ⑩

compensation
↑

NOTE 1:
-
klorkmen Reserve: - &

Example: suppose w.c. Reserve Balance 10lc=

and the claim lias.

Nie 10 Flac 12 Hec

↓ ↓ ↓ ↓
1.2. 1.e

No claim claim
W.CRes= w.c.Res> Claim w.c. Res. [ Clair
lias. lial liab

① w.c. Reserve AcDr 101

to partners cap. 10192

(019 PSR)

- ② w.c. Reserve He DU 10k

e
to provision for 1019C
w.c. claim Al

③
w.c. Reserve HSC 10K
To provision for -RC

- to
w.c. claim
partner cap.
2019 PSR)
3RC

⑭ w.c. Reserve Ac Dr 10k Partners Capital A/DW 219

Revaluation A DV 2 Lec To Revaluation As 219c

for 12 LC jo1d PSR)

To provision
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 ⑭

-2 In Fluctuation Reserve: -

Example:Investment (Book values = SOMC

Fluctuation Reserve-4KC
Investment
palance

(market value)
Investment =

My 201= MY < B. Y. my > B.y.

↓ 1919) <201K 23 - 20

16 Ke <2019
MY BY
=

↓ 15K: <20k
I
Here is
investment My=19Kc (loss:11a) Here:
at ↓ value of
macket
is par
X Here:Loss <IFR Balance Investmenthis

So, whole Reserve be IRC YRC more than Brok

Balance MF to ↓ value ofInvestment

↓
partners capital II. Reserve ACIN 41
↓ To Investment
1IC2 Hence:whole IF. Res. Ba
To partner cap. 3UC ↓

IF. Res 142 2019 PSN) TF to partners capital

To partner ↓

1 16x
My= (Loss:4(x) 3 Inc. in investment
cap.
C01d PSR) NY value IE to first
·
Here:Loss- IFR Balance Revelation HC $
1.e 4k 442 then to partner sap.
=

↓ t
I.F. Reserve He Dr 4K2
To Investment Al4H ii) IF. Reserve ACI44c
3 Ke
4
To partner cap.

I
ii) IF. Res. AK D5 lac

(iii) My= 154 (ross:5(1) Revaluation AK Dr 11a 2019 PSRS

To Investment 5ICC
↓ (ii) InvestmentADU 3c

Here
-> (i) partners cap 114
To Revelvetttc3Lec
Loss> IFR Belance
To Revaluation 1 Is

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1.e 5ixe>442 LOld PSR)
jiil Revelvetton ADV 3LC

3KC
y
To partner cap.
2019 PSH)
 ⑫

(1) Accounting for:

Revaluation of
->
Assets.
I
-> Reassessmentof liab

In of PSM
case
change in among
partners)
existing
There are 2 methods for
teeonting: -

W W
Revised value Revised value
↓ H

Recorded in Books Not Recorded in Book.

- I

Assets Las.
same treatment
Goodwill
as
C
↓

⑪ ①
Step-(1) Increase Increase Step-11
in value of in value calculate Net

Assets 1 A lias' ↑
pubit/loss due

to Revolution.
Assets Mar Revaluation Acer Cross)
To Revaluation
(parti To lies. Step-2S
Ac calculate

sacritics, raining
② Decrease in &
Dec. in value Retto
value ofAssets A lias.
Step-13)
Revaluation A/DV (loss) Has.. ACDU Distribute Net

To Assets Ac To Reventil Apr przit/loss on

Revelvetion

amoung partner
in SR I UR.
I
=
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1..e.

AdjustmentEntry.
 ⑮

AK
Step-11:Prepare Revaluation

Revolution AK
xX
inc in
To Dec, in value of xx
By value of
Assets. Assets

to Inc in value of X
By Dec in value of
·

x x
las. vial.

was.
To unrecorded x<
By unrecorded Assets. X<

closs to partens <Benefitto partner)

to Revolution Revelatin xx
gain on x *
By loss on

a. I a I
is
↓ tr

partner cap-credit partner Capt Debit

step - entries:

V W
Revalittor Revalnetton
profit oss.

↓ ↓
Revaluator A Dr partness cap.
to
partner cap.
To Revelvetti
201d PS12) 201d PSR).

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