Question

X and Y are partners sharing profits and losses in the ratio of 4 : 3. Their Balance Sheet as at 31st March, 2026 stood as follows:

Liabilities	₹	₹	Assets	₹
Sundry Creditors		28,000	Cash	20,000
Reserve		42,000	Sundry Debtors	1,20,000
Capital Accounts:			Stock	1,40,000
X	2,40,000		Fixed Assets	1,50,000
Y	1,20,000	3,60,000
		4,30,000		4,30,000

They decided that with effect from 1st April, 2026, they will share profits and losses in the ratio of 2 : 1. For this purpose they decided that:

1. Fixed assets are to be depreciated by 10%.
2. A provision of 6% be made on debtors for doubtful debts.
3. Stock be valued at ₹ 1,90,000.
4. An amount of ₹ 3,700 included in creditors is not likely to be claimed.

Partners decided to record the revised values in the books. However, they do not want to disturb the reserves. You are required to prepare journal entries, capital accounts of the partners and the revised balance sheet.

Answer 1

Journal Entries
Date	Particulars	L.F.	Dr. ₹	Cr. ₹
1.	Revaluation A/c   ...Dr.		15,000
	To Fixed Assets A/c			15,000
	(Being fixed assets depreciated by 10%.)
2.	Revaluation A/c   ...Dr.		7,200
	To Provision for Doubtful Debts A/c			7,200
	(Being provision for doubtful debts created @ 6% on debtors.)
3.	Stock A/c   ...Dr.		50,000
	To Revaluation A/c			50,000
	(Being stock appreciated from ₹ 1,40,000 to ₹ 1,90,000.)
4.	Sundry Creditors A/c   ...Dr.		3,700
	To Revaluation A/c			3,700
	(Being amount of creditors no longer payable written back.)
5.	Revaluation A/c   ...Dr.		31,500
	To X's Capital A/c			18,000
	To Y's Capital A/c			13,500
	(Being profit on revaluation transferred to partners in old ratio 4 : 3.)
6.	X's Capital A/c   ...Dr.		4,000
	To Y's Capital A/c			4,000
	(Being adjustment for Reserve made due to change in profit-sharing ratio without disturbing the Reserve A/c.)

Working Notes

1. Profit on Revaluation

Fixed Assets depreciation:

₹ 1,50,000 × 10% = ₹ 15,000​

Provision on Debtors:

₹ 1,20,000 × 6% = ₹ 7,200

Increase in Stock:

₹ 1,90,000 − ₹ 1,40,000 = ₹ 50,000

Decrease in Creditors:

₹ 3,700

Profit on Revaluation:

₹ 50,000 + ₹ 3,700 − ₹ 15,000 − ₹ 7,200 = ₹ 31,500

Distributed in old ratio 4 : 3

`X = 31,000 xx 4/7 = 18,000`

`Y = 31,500 xx 3/7 = 13,500`

2. Adjustment of Reserve

Old ratio:

X : Y = 4 : 3

New ratio:

X : Y = 2 : 1

X's gain:

`2/3 - 4/7 = (14 - 12)/21 = 2/21`

Y sacrifices:

`3/7 - 1/3 = (9 - 7)/21 = 2/21`

Reserve = ₹ 42,000

Adjustment:

`42,000 xx 2/21 = 4,000`

Therefore:

X Dr. ₹ 4,000 and Y Cr. ₹ 4,000

Partners' Capital Accounts
Particulars	X ₹	Y ₹	Particulars	X ₹	Y ₹
To Y's Capital A/c, Reserve Adjustment	4,000	,	By Balance b/d	2,40,000	1,20,000
To Balance c/d	2,54,000	1,37,500	By Revaluation A/c	18,000	13,500
			By X's Capital A/c, Reserve Adjustment	,	4,000
Total	2,58,000	1,37,500	Total	2,58,000	1,37,500

 

Revised Balance Sheet as at 1st April, 2026
Liabilities	₹	Assets	₹	₹
Sundry Creditors ₹ 28,000 − ₹ 3,700	24,300	Cash		20,000
Reserve	42,000	Sundry Debtors	1,20,000
Capital Accounts:		Less: Provision @ 6%	(7,200)	1,12,800
X	2,54,000	Stock		1,90,000
Y	1,37,500	Fixed Assets		1,35,000
Total	4,57,800	Total		4,57,800