A LevelAccountingCambridge (CIE)Revision NotesFinancial AccountingPreparation of Financial Statements for PartnershipsChange in Partners' Profit-Sharing Ratio

Change in Partners' Profit-Sharing Ratio (Cambridge (CIE) A Level Accounting): Revision Note

Exam code: 9706

Written by: Dan Finlay

Reviewed by: Lucy Kirkham

Updated on 12 March 2026

STEP 1
Calculate the net profit or loss on revaluation for each partner using the old ratio
- Debit the capital accounts if it is a net loss
- Credit the capital accounts if it is a net profit
STEP 2
Calculate the share of the raised goodwill for each partner using the old ratio
- Credit the capital accounts
STEP 3
Calculate the share of the eliminated goodwill for each partner using the new ratio
- Debit the capital accounts
STEP 4
Balance the capital accounts

Worked Example

Aggie and Chris are in a partnership. The partnership agreement stated that they shared profits and losses equally.

On 1 February 2026, the partnership agreement was changed. The profit-sharing ratio between Aggie and Chris became 3:2.

Balances at 31 January 2026 were:

	$
Capital account
Aggie	45 000
Chris	35 000
Premises (carrying amount)	100 000
Inventory	20 000

The premises were revalued at $130 000.
The inventory was revalued at $15 000.
Goodwill on 1 February 2026 was valued at $30 000 although it was not to be retained in the books of account.

Prepare the capital accounts for Aggie and Chris on 1 February 2026.

Answer:

Calculate the net profit or loss on revaluation

		$
Increase in premises	$130 000 - $100 000	30 000
Decrease in inventory	$20 000 - $15 000	(5 000)
Profit on revaluation		25 000

Share the net profit using the old ratio

These values will be credited to the capital accounts as it was a profit

Aggie: $\frac{1}{2} \times $ 25 000 = $ 12 500$

Chris: $\frac{1}{2} \times $ 25 000 = $ 12 500$

Calculate the share of goodwill using the old ratio

These will be credited to the capital accounts

Aggie: $\frac{1}{2} \times $ 30 000 = $ 15 000$

Chris: $\frac{1}{2} \times $ 30 000 = $ 15 000$

Calculate the share of goodwill using the new ratio

These will be debited to the capital accounts

Aggie: $\frac{3}{5} \times $ 30 000 = $ 18 000$

Chris: $\frac{2}{5} \times $ 30 000 = $ 12 000$

Make the entries into the capital accounts and balance the account

		Aggie $	Chris $			Aggie $	Chris $
Feb 1	Goodwill	18 000	12 000	Jan 31	Balance b/d	45 000	35 000
	Balance c/d	54 500	50 500	Feb 1	Revaluation	12 500	12 500
					Goodwill	15 000	15 000
		72 500	62 500			72 500	62 500
					Balance b/d	54 500	50 500

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Change in Partners' Profit-Sharing Ratio (Cambridge (CIE) A Level Accounting): Revision Note

Worked Example

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Author: Dan Finlay

Reviewer: Lucy Kirkham

Change in Partners' Profit-Sharing Ratio (Cambridge (CIE) A Level Accounting): Revision Note