Question

Rani and Seeta were partners sharing profits in the ratio of 3 : 1. They admitted Mona as a new partner from 1st April, 2024. New profit sharing ratio is agreed at 3 : 2 : 1. On this date, their Balance Sheet disclosed the following items:

BALANCE SHEET (an extract)
Liabilities	₹	Assets	₹
General Reserve	5,00,000	Profit and Loss (Dr.)	1,10,000
		Advertisement Suspense Account	30,000

Partners decided to record the effect of the above items without affecting their book values. Pass the necessary adjusting entry.

Answer 1

Adjusting Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	Seeta’s Capital A/c   ...Dr.		30,000
	Mona’s Capital A/c   ...Dr.		60,000
	To Rani’s Capital A/c			90,000
	(Adjustment for general reserve and accumulated losses without affecting book values)

Working Note:

Calculate the sacrificing/gaining ratio:

Calculate the sacrificing or gaining share for each partner.

Old Ratio of Rani and Seeta = 3 : 1

New Ratio of Rani, Seeta, and Mona = 3 : 2 : 1

Sacrificing or Gaining Share = Old Share − New Share

Rani = `3/4 - 3/6`

= `(3 xx 3)/(4 xx 3) - (3 xx 2)/(6 xx 2)`

= `9/12 - 6/12`

= `(9 - 2)/12`

= `3/12` (Sacrifice)

Seeta = `1/4 - 2/6`

= `(1 xx 3)/(4 xx 3) - (2 xx 2)/(6 xx 2)`

= `3/12 - 4/12`

= `(3 - 4)/12`

= `(-1)/12` (Gain)

Mona = `1/6`

= `(1 xx 2)/(6 xx 2)`

= `2/12` (Gain)

Net Effect = General Reserve − Profit and Loss (Dr.) − Advertisement Suspense Account

= 5,00,000 − 1,10,000 − 30,000

= 3,60,000

This net credit balance of ₹ 3,60,000 will be adjusted among the partners.

Calculate the share of the net effect for each partner:

The adjusting entry will involve debiting the gaining partners and crediting the sacrificing partners with their respective shares of the net effect.

Rani = `3,60,000 xx 3/12`

= 90,000

Seeta = `3,60,000 xx 1/12`

= 30,000

Mona = `3,60,000 xx 1/12`

= 60,000