Question

A and B are partners in a firm sharing profits in the ratio of 3 : 2. On March 31, 2024, their Balance Sheet showed a general reserve of ₹ 54,000. On that date they decided to admit C as a new partner. The new profit-sharing ratio between A, B and C will be 4 : 3 : 2. Record the necessary journal entry in the books of the firm under the following circumstances:

1. When they want to distribute the general reserve.
2. When they don’t want to distribute the general reserve and prefer to record an adjustment entry for the same.

Answer 1

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
	General Reserve A/c   ...Dr.		54,000
	To A’s Capital A/c			32,400
	To B’s Capital A/c			21,600
	(General reserve transferred to old partners’ capital accounts)
	C’s Capital A/c		12,000
	To A’s Capital A/c			8,400
	To B’s Capital A/c			3,600
	(Adjustment for general reserve)

Working Note:

Distribution General Reserve:

A’s Share = `54,000 xx 3/5`

= 32,400

B’s Share = `54,000 xx 2/5`

= 21,600

Calculate the sacrificing/gaining ratio:

A’s sacrifice/gain = `3/5 - 4/9`

= `(3 xx 9)/(5 xx 9) - (4 xx 5)/(9 xx 5)`

= `27/45 - 20/45`

= `(27 - 20)/45`

= `7/45` (Sacrifice)

B’s sacrifice/gain = `2/5 - 3/9`

= `(2 xx 9)/(5 xx 9) - (3 xx 5)/(9 xx 5)`

= `18/45 - 15/45`

= `(18 - 15)/45`

= `3/45` (Sacrifice)

C’s gain: `2/9`

= `(2 xx 5)/(9 xx 5)`

= `10/45`

Calculate the share of general reserve for each partner’s gain or sacrifice:

A’s sacrifice = `54,000 xx 7/45`

= 8,400

B’s sacrifice = `54,000 xx 3/45`

= 3,600

C’s sacrifice = `54,000 xx 10/45`

= 12,000