Question

The Balance Sheet of P, Q and R who were sharing profits and losses in the ratio of `1/2:1/3:1/6` respectively stood as follows as at 31st March 2025:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Creditors		1,30,000	Land & Building	10,00,000
General Reserve		2,70,000	Investments (Market Value ₹ 2,00,000)	2,50,000
Workmen Compensation Reserve		60,000	Stock	2,00,000
Investment Fluctuation Reserve		20,000	Debtors	1,50,000
Capitals:		13,00,000	Cash at Bank	1,20,000
A	6,00,000		Advertisement Suspense	60,000
B	4,00,000
C	3,00,000
		17,80,000		17,80,000

Q retires and P and R decide to share future profits and losses in the ratio of 3 : 2. Claim on account of Workmen Compensation is estimated at ₹ 45,000. P and R agreed that effect of retirement is to be recorded by a single journal entry.

Also prepare the Capital Accounts of partners.

Answer 1

Journal Entry
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
	P’s Capital A/c       ...Dr.		19,500
	R’s Capital A/c      ...Dr.		45,500
	To Q’s Capital A/c			65,000
	(Being Adjustment for accumulated profits and losses on Q’s retirement)

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	P	Q	R	Particulars	P	Q	R
To Q’s Capital A/c	19,500	-	45,500	By Balance b/d	6,00,000	4,00,000	3,00,000
To Q’s loan A/c	-	4,65,000	-	By P’s Capital A/c	-	19,500	-
To Balance c/d	5,80,500	-	2,54,500	By R’s Capital A/c	-	45,500	-
	6,00,000	4,65,000	3,00,000		6,00,000	4,65,000	3,00,000

Working notes:

(i) Old Ratio = `1/2:1/3:1/6`

= 3 : 2 : 1

Gaining ratio = New Ratio – Old Ratio 

P = `3/5-3/6=(18-15)/30=3/30`

R = `2/5-1/6=(12-5)/30=7/30`

Gaining Ratio = 3 : 7

(ii) 

Adjustment for Accumulated Profits/Losses:	₹
General Reserve	2,70,000
Add: Workmen’s Compensation Reserve (60,000 – 45,000)	15,000
Less: Investment Fluctuation Reserve	(30,000)
Less: Advertisement Suspense	(60,000)
Net Amount	1,95,000

Q’s share of Profits and Losses = `1,95,000xx2/6` = ₹ 65,000

P = `65,000xx3/10` = ₹ 19,500

R = `65,000xx7/10` = ₹ 45,500