When a new partner comes into the business, old partners have to give him his profit share from their portion. Thus change in profit sharing ratio is an important aspect to be considered on reconstitution by admission. In academic accounting, change in profit sharing ratio can be presented in various ways. The existing partners may decide to change their profit sharing ratio for various reasons. When the profit sharing ratio is revised among existing partners, there ought to be a partial sacrifice of profit share by some partners in favour of others. The sacrifice of one or a group of partners becomes the gain of the remaining partners.

Following is the formula for calculating sacrificing ratio: Sacrificing ratio = Old ratio – new ratio

Capitalisation of Average Profits Method:

Under this method we calculate the average profits and then assess the capital needed for earning such average profits on the basis of normal rate of return. Such capital is called capitalised value of average profits. The formula is:

Capitalised Value of Average Profits = Average Profits × (100 / Normal Rate of Return)
Capital Employed = Assets – Liabilities
Goodwill = Capitalised Value of Average Profits – Capital Employed
Here capital employed = 1,00,000
Average profit = Rs. 20,000
Normal rate of return = 15%
Capitalised Value of Average Profits = 20,000/15% = Rs. 1,33,333
Goodwill = 1,33,333 – 1,00,000 = Rs. 33,333

“Super Profit”, means the excess of chargeable profit that has been earned by the company. The chargeable profits must be in excess of it deductions. In other words the excess of the chargeable profits must be in excess of its deduction of its chargeable profits. Super Profits are the profits earned above the normal profits Steps for calculating super profit are given below:

(i) Normal Profits = Capital Invested × Normal rate of return/100

(ii) Super Profits = Average Profits – Normal Profits

Here capital employed = 1,00,000
Average profit = Rs. 25,000
Normal rate of return = 20%
So normal profit = 20% of 1,00,000 = Rs. 20,000
Thus super profits = 25,000 – 20,000 = Rs. 5,000

A sale to A recorded in Purchases book would affect sales, Purchases and A.

The amount of the profits (or loss) as arising to the partnership firm in a year or period is apportioned in accordance with the terms of the partnership agreement relating to the sharing of profits and losses.

Here Sita and Gita are partners sharing profits and losses in the ratio of 3 : 2 and during the year firm earned Rs. 7,800 after allowing interest on capital.

Profits apportioned among Sita and Gita is:
Sita’s share = 3/5 of 7,800 = Rs. 4,680
Gita’s share = 2/5 of 7,800 = Rs. 3,120

The difference in trial balance is due to wrong placing of Misc. Expenses A/c. It should come on Dr. side.

In financial accounting, every single event occurring in monetary terms is recorded. Sometimes, it just so happens that some events are either not recorded or it is recorded in the wrong head of account or wrong figure is recorded in the correct head of account.

Whatever the reason may be, there is always a chance of error in the books of accounts. These errors in accounting require rectification. When there is a difference in a trial balance a suspense account is opened with the amount of the difference so that the trial balance agrees (pending the discovery and correction of the errors causing the difference).

Here since after preparing the trial balance the accountant finds that the total of the debit side is short by Rs. 1,000.
This difference will be debited to suspense account to incease the balance of the debit side of the trial balance

The loss on theft of cash and any other assets may be simply be expensed to the income statement net of any insurance claim received or receivable. Following accounting entries would therefore be required:

Debit Cash embezzlement a/c
Credit Cash A/c

Here Rs. 6,000 stolen from the safe of the firm will be recorded as: Dr. Cash embezzlement a/c and Cr. Cash a/c Rs. 6,000.

The goods withdrawn by Ganesh for personal use will be debited to his salary Rs. 2,500 and the when he received Rs. 9,500 again in cash for salary he got Rs. 2,000 excess salary so it should be debited to salaries paid in advance as per the matching principle.

When a credit sale involves the application of sales tax, the receivable balance includes the amount of sales tax since it will be recovered from the customer. Sales is recorded net of sales tax because any sales tax received on the sales will be returned to tax authorities and hence, does not form part of income.

Sales tax account is credited since this is the amount of tax payable that will be paid to tax authorities.

The accounting entry to record a credit sale involving sales tax will therefore be as follows:
Debit Receivable (Gross Amount)
Credit Sales (Net Amount)
Credit Sales Tax (Payable) (Net Amount)
Here Goods sold for cash Rs. 10,000, plus 10% sales tax. Sales will be credited net of sales tax i.e. Rs.10,000.