Question

Dinesh, Ramesh and Suresh are partners in a firm sharing profits and losses in the ratio of 3 : 3 : 2. From 1st April, 2018 they decided to share the future profits equally. On this date, the General Reserve showed a balance of ₹ 1,60,000; Revaluation of fixed assets resulted into a gain of ₹ 1,02,000 and stock resulted into a loss of ₹ 22,000. On this date the goodwill of the firm was valued at ₹ 3,60,000.

Pass necessary journal entries for the above transactions on reconstitution of the firm.

Answer 1

Journal Entries
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1 Apr. 2018	General Reserve A/c   ...Dr.		1,60,000
	To Dinesh’s Capital A/c			60,000
	To Ramesh’s Capital A/c			60,000
	To Suresh’s Capital A/c			40,000
	(Being General Reserve distributed among partners in old ratio 3 : 3 : 2)
1 Apr. 2018	Fixed Assets A/c   ...Dr.		1,02,000
	To Revaluation A/c			1,02,000
	(Being increase in value of fixed assets recorded)
1 Apr. 2018	Revaluation A/c   ...Dr.		22,000
	To Stock A/c			22,000
	(Being decrease in value of stock recorded)
1 Apr. 2018	Revaluation A/c   ...Dr.		80,000
	To Dinesh’s Capital A/c			30,000
	To Ramesh’s Capital A/c			30,000
	To Suresh’s Capital A/c			20,000
	(Being profit on revaluation transferred to partners in old ratio 3 : 3 : 2)
1 Apr. 2018	Suresh’s Capital A/c   ...Dr.		30,000
	To Dinesh’s Capital A/c			15,000
	To Ramesh’s Capital A/c			15,000
	(Being goodwill adjusted through partners’ capital accounts)

Working note:

1. Sacrificing and Gaining Ratio

Old ratio = 3 : 3 : 2

New ratio = 1 : 1 : 1

Dinesh:

`3/8 - 1/3 = 1/24` sacrifice

Ramesh:

`3/8 - 1/3 = 1/24` sacrifice

Suresh:

`1/3 - 2/8 = 1/12` gain

Therefore, sacrificing ratio of Dinesh and Ramesh: 1 : 1

2. Goodwill Adjustment

Goodwill = ₹ 3,60,000

Suresh’s gain:

`3,60,000 xx 1/12 = 30,000`

Dinesh’s share:

`30,000 xx 1/2 = 15,000`

Ramesh’s share:

`30,000 xx 1/2 = 15,000`

3. General Reserve

General Reserve = ₹ 1,60,000

Distributed in old ratio 3 : 3 : 2:

Dinesh:

`1,60,000 xx 3/8 = 60,000`

Ramesh:

`1,60,000 xx 3/8 = 60,000`

Suresh:

`1,60,000 xx 2/8 = 40,000`

4. Profit on Revaluation

Gain on fixed assets = ₹ 1,02,000

Less: Loss on stock = ₹ 22,000

Profit on Revaluation = ₹ 80,000

Distributed in old ratio 3 : 3 : 2:

Dinesh = ₹ 30,000

Ramesh = ₹ 30,000

Suresh = ₹ 20,000