Question

Mahi and Neena are partners sharing profits and losses equally. From 1st April, 2026, they decided to share profits and losses in the ratio of 2 : 3. The firm's Balance Sheet shows debit balance of Profit and Loss Account of ₹ 40,000.

Partners decided to continue with the above balance in the books of the reconstituted firm.

Pass necessary adjustment entry.

Answer 1

Old ratio of Mahi and Neena:

1 : 1

So old shares:

Mahi = `1/2`, Neena = `1/2`

New ratio:

2 : 3

So new shares:

Mahi = `2/5`, Neena = `3/5`

Since the debit balance of P&L A/c ₹ 40,000 is not to be written off, we pass only an adjustment entry.

Gain/Sacrifice

Mahi: `1/2 - 2/5 = 5/10 - 4/10 = 1/10`

Mahi sacrifices `1/10`

Neena: `1/2 - 3/5 = 5/10 - 6/10 = -1/10`

Neena gains `1/10`

Adjustment amount:

`40,000 xx 1/10 = 4,000`

Because this is an accumulated loss, the gaining partner should compensate the sacrificing partner. Hence:

Journal Entry
Date	Particulars	L.F.	Dr. ₹	Cr. ₹
	Mahi’s Capital A/c   ...Dr.		4,000
	To Neena’s Capital A/c			4,000
	(Being the adjustment entry passed for goodwill by debiting the gaining partner's capital account and crediting the sacrificing partner's capital account)