Question

A, B and C are partner sharing profits in the ratio of 1 : 2 : 3. On 1-4-2023 they decided to share the profits equally. On the date there was a credit balance of ₹ 1,20,000 in their Profit and Loss Account and a balance of ₹ 1,80,000 in General Reserve Account. Instead of closing the General Reserve Account and Profit and Loss Account, it is decided to record an adjustment entry for the same. In the necessary adjustment entry to give effect to the above arrangement:

Options

• Dr. A by ₹ 50,000; Cr. B by ₹ 50,000

• Cr. A by ₹ 50,000; Dr. B by ₹ 50,000

• Dr. A by ₹ 50,000; Cr. C by ₹ 50,000

• Cr. A by ₹ 50,000; Dr. C by ₹ 50,000

Answer 1

Dr. A by ₹ 50,000; Cr. C by ₹ 50,000

Explanation:

1. Total Value to Adjust

Profit & Loss A/c (Credit balance): ₹ 1,20,000

General Reserve Account: + ₹ 1,80,000

Total Amount: ₹ 3,00,000

2. Calculation of Sacrificing or Gaining Share

Old share − New share

Old Ratio: `1 : 2 : 3 (or 1/6, 2/6, 3/6)`

New Ratio: `1 : 1 : 1 (or 1/3, 1/3, 1/3 = 2/6, 2/6, 2/6)`

A's Share: `1/6 - 2/6 = -1/6  "(Gain)"`

B's Share: `2/6 - 2/6 = 0  "(No change)"`

C's Share: `3/6 - 2/6 = 1/6  "(Sacrifice)"`

3. Compensation Amount

A (Gaining Partner): `3,00,000 xx 1/6 = 50,000  "(Debit)"`

C (Sacrificing Partner): `3,00,000 xx 1/6 = 50,000  "(Credit)"`