Question

X, Y and Z are sharing profits and losses in the ratio of 5 : 3 : 2. They decide to share future profits and losses in the ratio of 2 : 3 : 5 with effect from 1st April, 2019. They also decide to record the effect of the following accumulated profits, losses and reserves without affecting their book values by passing a single entry .

	Book Values (₹)
General Reserve	6,000
Profit and Loss A/c (Credit)	24,000
Advertisement Suspense A/c	12,000

Pass an Adjustment Entry.

Answer 1

Journal

 

Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	Z’s Capital A/c	Dr.		5,400
	To X’s Capital A/c				5,400
	(Adjustment for General Reserve, Profit and Loss A/c and Advertisement Suspense account is made on change in profit sharing ratio)

Working Notes:

WN 1 

Net amount to be adjusted = General reserve + profit and loss A/c (Credit) - Advertisement suspense A/c

                                            = 6,000 + 24,000 - 12,000

                                            = Rs 18,000

WN 2 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (X, Y and Z) = 5 : 3 : 2

New Ratio (X, Y and Z) = 2 : 3 : 5

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

X's share = `5/10 - 2/10 = 3/10` (sacrifice)

Y's share = `3/10 - 3/10 = "Nil"`

Z's share = `2/10 - 5/10 = (-3)/10` (gain)

Amount to be debited to X's capital = `18,000 xx 3/10` = Rs 5,400

Amount to be debited to Z's capital = `18,000 xx 3/10` = Rs 5,400