Question

Soma and Navya were partners sharing profits in the ratio of 2 : 1. Ananya was admitted as a partner for `1/5`th share in profits. Following balances appeared in the books of the firm on that day.

	₹
Debtors	1,80,000
Provision for Doubtful Debts	12,000

Debtors worth ₹ 10,000 became bad. It was decided to create 4% provision on doubtful debts.

Pass necessary journal entries.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bad Debts A/c   ...Dr.		10,000
	To Debtors A/c			10,000
	(Being bad debts written off)
2.	Provision for Doubtful Debts A/c   ...Dr.		10,000
	To Bad Debts A/c			10,000
	(Being bad debts transferred and adjusted against the existing provision)
3.	Revaluation A/c   ...Dr.		4,800
	To Provision for Doubtful Debts A/c			4,800
	(Being additional provision created to maintain it at 4% on debtors)
4.	Soma's Capital A/c   ...Dr.		3,200
	Navya's Capital A/c   ...Dr.		1,600
	To Revaluation A/c			4,800
	(Being loss on revaluation transferred to old partners' capital accounts in old ratio of 2 : 1)

Working note:

1. Treatment of Bad Debts

Total Debtors: ₹ 1,80,000

Actual Bad Debts: ₹ 10,000

Existing Provision for Doubtful Debts: ₹ 12,000

The actual bad debts of ₹ 10,000 are written off against the existing provision of ₹ 12,000.

Remaining Provision balance: 12,000 − 10,000 = 2,000

2. Calculation of New Provision

The new provision is calculated at 4% on the remaining good debtors:

Remaining Debtors: 1,80,000 − 10,000 = 1,70,000

Required New Provision: 4% of 1,70,000 = 6,800

3. Amount to be Debited to Revaluation Account

Required Provision: ₹ 6,800

Less: Balance already remaining in Provision A/c: ₹ 2,000

Additional Provision to be created: 6,800 − 2,000 = 4,800 (Loss on Revaluation)

4. Distribution of Revaluation Loss

The loss of ₹ 4,800 is distributed between old partners (Soma and Navya) in their old profit-sharing ratio (2 : 1):

Soma's Share of Loss: `4,800 xx 2/3 = 3,200`

Navya's Share of Loss: `4,800 xx 1/3 = 1,600`