Change in Profit Sharing Ratio Among Existing Partners Class 12 Handwritten Notes Pdf Download
I. Introduction to Adjustment of Capital and Change in Profit Sharing Ratio
A. Explanation of capital adjustment: Provides an overview of the concept of capital adjustment in partnership firms, which involves changes to the partners' capital contributions.
B. Importance of profit sharing ratio: Discusses the significance of the profit sharing ratio, which determines how profits and losses are distributed among the partners.
II. Circumstances Requiring Capital Adjustment and Change in Profit Sharing Ratio
A. Admission of a new partner: Explains how the admission of a new partner may necessitate adjustments to the existing partners' capital and profit sharing ratios.
B. Retirement of a partner: Discusses how the retirement of a partner can lead to changes in the capital and profit sharing ratios of the remaining partners.
C. Death of a partner: Covers the adjustments required in the capital and profit sharing ratios following the death of a partner.
D. Dissolution and reconstitution of a partnership: Addresses the circumstances when a partnership is dissolved or reconstituted, resulting in adjustments to the capital and profit sharing ratios.
III. Methods for Adjusting Capital and Profit Sharing Ratio
A. Fixed capital method: Explains the fixed capital approach, where partners' capital remains unchanged despite changes in their profit sharing ratios.
B. Fluctuating capital method: Describes the fluctuating capital method, where partners' capital accounts are adjusted based on their new profit sharing ratios.
C. Revaluation of assets and liabilities: Discusses the process of revaluing partnership assets and liabilities to reflect their fair market values after capital adjustments.
D. Settlement of goodwill: Addresses the treatment of goodwill in cases of capital adjustment and change in profit sharing ratio.
IV. Accounting Entries for Capital Adjustment and Change in Profit Sharing Ratio
A. Adjustment of partners' capital accounts: Outlines the accounting entries required to adjust partners' capital accounts based on their new capital contributions.
B. Adjustment of partners' current accounts: Explains how partners' current accounts are adjusted to reflect changes in their profit sharing ratios.
C. Treatment of goodwill: Discusses the accounting entries for recording the revaluation and settlement of goodwill, if applicable.
D. Allocation of accumulated profits and losses: Covers the distribution of accumulated profits or losses among partners based on their new profit sharing ratios.
V. Impact on Partnership Financial Statements
A. Balance sheet presentation: Addresses how the adjustments in capital and profit sharing ratio impact the presentation of partnership assets, liabilities, and partners' capital balances in the balance sheet.
B. Income statement presentation: Discusses how changes in the profit sharing ratio affect the allocation of profits and losses in the income statement.
VI. Legal and Tax Implications
A. Compliance with partnership agreement: Emphasizes the importance of adhering to the terms and conditions outlined in the partnership agreement when making capital adjustments and changing profit sharing ratios.
B. Tax implications: Highlights potential tax consequences associated with capital adjustments and changes in profit sharing ratios, including considerations related to capital gains, allowable deductions, and partner-specific tax liabilities.
VII. Conclusion
A. Recap of key points discussed: Summarizes the main topics covered in the outline.
B. Significance of proper capital adjustment and profit sharing ratio: Reinforces the importance of accurately adjusting capital and profit sharing ratios to maintain transparency and fairness within a partnership firm.
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