Question

X and Y are partners sharing profits in the ratio of 2 : 1. On 31st March, 2019, their Balance Sheet showed General Reserve of ₹ 60,000. It was decided that in future they will share profits and losses in the ratio of 3 : 2. Pass necessary Journal entry in each of the following alternative cases:

1. When General Reserve is not to be shown in the new Balance Sheet.
2. When General Reserve is to be shown in the new Balance Sheet.

Answer 1

(i) If they do not want to show General Reserve in the new Balance Sheet

Journal
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2019 April 1	General Reserve A/c    ...Dr.		60,000	-
	To X’s Capital A/c		-	40,000
	To Y’s Capital A/c		-	20,000
	(Being Adjustment of balance in General Reserve A/c in old ratio)

 

Working Notes:

WN1: Calculation of Share of General Reserve

X’s share = `60,000 xx 2/3 = 40,000`

Y’s share = `60,000 xx 1/3 = 20,000`

(ii) If they want to show General Reserve in the new Balance Sheet

Journal
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2019 April 1	Y’s Capital A/c    ...Dr		4,000	-
	To X’s Capital A/c		-	4,000
	(Being Adjustment of balance in General Reserve A/c in sacrificing/gaining ratio)

Working Notes:

1. Calculation of Gain/Sacrifice

Sacrificing Ratio = Old ratio – New Ratio

X = `2/3 - 3/5 = 1/5` (sacrifice)

Y = `1/3 - 2/5 = -1/15` (gain)

2. Calculation of Compensation by Y to X

Amount to be compensated = `60,000 xx 1/15`

= 4,000