X and Y were partners sharing profits and losses in the ratio of 3 : 1. They decided that with effect from 1st April 2016, they would share profits and losses in the ratio of 1 : 3. The partnership deed provides that in the event of any change in profit sharing ratio, the goodwill should be valued at the total of two year's profits preceding the date the decision became effective. The profits for 2013-14, 2014-15 and 2015-16 were Rs. 60,000, Rs. 70,000 and Rs. 90,000 respectively. Pass the necessary Journal entry to give effect to the above arrangement.

Explanation

Value of goodwill = Rs. 70,000 + Rs. 90,000 = Rs. 1,60,000
Calculation of Sacrifice or Gain :
Old Ratio 3 : 1
New Ratio 5 : 3
`X =(3)/(4)-(5)/(8)=(6-5)/(8)=(1)/(8)`(Sacrifice)
`Y=(1)/(4)-(3)/(8)=(2-3)/(8)=(1)/(8)`(Gain)
Since X has sacrificed, he will be credited from `(1)/(8)` of Rs. 1,60,000 = Rs. 20,000
Since Y has gained, he will be debited from `(1)/(8)` of Rs. 1,60,000 = Rs. 20,000