Question

Bhawana and Vedika were partners in a firm sharing profits and losses in the ratio of 5 : 4. From 1^st April, 2024 they decided to share future profits and losses in the ratio of 4 : 5. On this date, their balance sheet showed a debit balance of ₹ 1,80,000 in Profit and Loss Account and a balance of 6,30,000 in General Reserve. Partners decided to write off debit balance in Profit and Loss Account but decided not to distribute the General Reserve. Pass necessary journal entries for the above transactions on the reconstitution of the firm. Show your workings clearly.

Answer 1

Journal
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
2024
April-1	Bhawana’s Capital A/c    ...Dr.		1,00,000	-
	Vedika’s Capital A/c    ...Dr.		80,000	-
	To Profit & Loss A/c		-	1,80,000
	(Being debit balance of Profit and Loss Account written off in ratio)
	Vedika’s Capital A/c    ...Dr.		70,000	-
	To Bhawana’s Capital A/c		-	70,000
	(Being General Reserve adjusted)

Working Notes:

New Ratio = 4 : 5

Bhawana = `5/9-4/9=1/9` (Sacrifice)

Vedika = `4/9-5/9=1/9` (Gain)

General Reserve to be adjusted with = ₹ 6,30,000 × `1/9`

= ₹ 70,000