Question

Asha, Rina and Chahat were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1.Their Balance Sheet as at 31st March, 2019 was as follows:

BALANCE SHEET OF ASHA, RINA AND CHAHAT as at 31st March, 2019
Liabilities	₹	₹	Assets	₹	₹
Creditors		12,00,000	Plant and Machinery		14,80,000
General Reserve		2,00,000	Stock		2,20,000
Capitals:			Sundry Debtors	2,60,000
Asha	3,00,000		Less: Provision for doubtful debts	20,000	2,40,000
Rina	2,00,000		Bank		60,000
Chahat	1,00,000	6,00,000
Total		20,00,000	Total		20,00,000

Asha, Rina and Chahat decided to share future profits equally with effect from 1st April, 2019. For this, it was agreed that:

1. Goodwill of the firm be valued at ₹ 1,50,000.
2. Bad debts amounted to ₹ 40,000. A provision for doubtful debts was to be made @ 5% on debtors.

Pass the necessary journal entries to record the above transactions in the books of the firm.

Answer 1

Journal Entries
Date	Particulars	L.F.	Dr. ₹	Cr. ₹
1.	General Reserve A/c   ...Dr.		2,00,000
	To Asha’s Capital A/c			80,000
	To Rina’s Capital A/c			80,000
	To Chahat’s Capital A/c			40,000
	(Being General Reserve distributed among partners in old ratio 2 : 2 : 1.)
2.	Chahat’s Capital A/c   ...Dr.		20,000
	To Asha’s Capital A/c			10,000
	To Rina’s Capital A/c			10,000
	(Being goodwill adjusted among partners on change in profit-sharing ratio.)
3.	Provision for Doubtful Debts A/c   ...Dr.		20,000
	Revaluation A/c   ...Dr.		31,000
	To Sundry Debtors A/c			40,000
	To Provision for Doubtful Debts A/c			11,000
	(Being bad debts written off and new provision @ 5% created on remaining debtors.)
4.	Asha’s Capital A/c   ...Dr.		12,400
	Rina’s Capital A/c   ...Dr.		12,400
	Chahat’s Capital A/c   ...Dr.		6,200
	To Revaluation A/c			31,000
	(Being loss on revaluation transferred to partners in old ratio 2 : 2 : 1.)

Working Notes

1. Goodwill Adjustment

Old ratio:

Asha : Rina : Chahat = 2 : 2 : 1

New ratio:

1 : 1 : 1

Asha sacrifices:

`2/5 - 1/3 = 1/15`

Rina sacrifices:

`2/5 - 1/3 = 1/15`

Chahat gains:

`1/3 - 1/5 = 2/15`

Goodwill = ₹ 1,50,000

Asha = `1,50,000 xx 1/15 = 10,000`

Rina = `1,50,000 xx 1/15 = 10,000`

Chahat = `1,50,000 xx 2/15 = 20,000`

Therefore:

Chahat Dr. ₹ 20,000; Asha and Rina Cr. ₹ 10,000

2. Bad Debts and New Provision

Debtors = ₹ 2,60,000

Less: Bad debts = ₹ 40,000

Remaining Debtors = ₹ 2,20,000

New provision @ 5%:

₹ 2,20,000 × 5% = ₹ 11,000

Revaluation loss:

₹ 40,000 + ₹ 11,000 − ₹ 20,000 = ₹ 31,000

Loss distributed in old ratio 2 : 2 : 1

Asha = `31,000 xx 2/5 = 12,400`

Rina = `31,000 xx 2/5 = 12,400`

Chahat = `31,000 xx 1/5 = 6,200`

3. General Reserve

₹ 2,00,000 distributed in old ratio 2 : 2 : 1

Asha = ₹ 80,000, Rina = ₹ 80,000, Chahat = ₹ 40,000