Question

Promil, Kamlesh and Ritika were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. From 1^st April, 2025 they decided to share future profits in the ratio of 2 : 3 : 5. On 31^st March, 2025, their Balance Sheet was as follows:

Balance Sheet of Promil, Kamlesh and Ritika as at 31st March, 2025
Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Sundry Creditors		3,00,000	Bank	1,80,000
General Reserve		1,60,000	Sundry Debtors	1,20,000
Capitals:			Stock	2,40,000
Promil	2,80,000	6,40,000	Land and Building	5,60,000
Kamlesh	2,20,000
Ritika	1,40,000
		11,00,000		11,00,000

It was agreed that:

1. Land and Building will be valued at ₹ 6,62,000.
2. A provision of 5% on debtors will be made for bad and doubtful debts.
3. Goodwill of the firm will be valued at ₹ 1,80,000 and the same will be treated without opening goodwill account.
4. The value of stock will be reduced to ₹ 2,00,000.

Showing your working clearly, pass necessary journal entries for the above transactions in the books of the firm.

Answer 1

Journal Entries In the books of the Firm
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
2025
Mar 31	Land and Building A/c   ...Dr.		1,02,000
	To Revaluation A/c			1,02,000
	(Being a recorded increase in land and building value)
Mar 31	Revaluation A/c   ...Dr.		46,000
	To Provision for Doubtful Debts A/c   ...Dr.			6,000
	To Stock A/c			40,000
	(Being a decline in stock value and the creation of provisions)
Mar 31	Revaluation A/c   ...Dr.		56,000
	To Promil’s Capital A/c			28,000
	To Kamlesh’s Capital A/c			16,800
	To Ritika’s Capital A/c			11,200
	(Being revaluation profit distributed to partners in the previous ratio)
Mar 31	General Reserve A/c   ...Dr.		1,60,000
	To Promil’s Capital A/c			80,000
	To Kamlesh’s Capital A/c			48,000
	To Ritika’s Capital A/c			32,000
	(Being a general reserve allocated in the previous ratio among partners)
Mar 31	Ritika’s Capital A/c   ...Dr.		54,000
	To Promil’s Capital A/c			54,000
	(Being a goodwill adjustment based on a ratio change)

Working Note:

1. Calculation of Gaining and Sacrificing Ratio:

Sacrifice/(Gain) = Old Ratio − New Ratio

Promil: `5/10 - 2/10 = 3/10` (Sacrifice)

Kamlesh: `3/10 - 3/10 = 0` (No change)

Ritika: `2/10 - 5/10 = -3/10` (Gain)

2. Adjustment for Goodwill:

Total Goodwill of the firm = ₹ 1,80,000

Ritika's Gain = `1,80,000 xx 3/10 = 54,000`

Promil's Sacrifice = `1,80,000 xx 3/10 = 54,000`

Adjustment Entry: Promil, the Sacrificing Partner, is credited and Ritika, the Gaining Partner, is debited.

3. Calculation of Profit/Loss on Revaluation:

Increase in Land and Building: ₹ 6,62,000 − ₹ 5,60,000 = ₹ 1,02,000 (Profit)

Decrease in Stock: ₹ 2,40,000 - ₹ 2,00,000 = ₹ 40,000 (Loss)

Provision for Doubtful Debts: 5% of ₹ 1,20,000 = ₹ 6,000 (Loss)

Net Profit on Revaluation: 1,02,000 − 40,000 − 60,000 = 56,000

4. Distribution of General Reserve and Revaluation Profit:

These are distributed in the Old Ratio (5 : 3 : 2)

Promil: `5/10` of the amount

Kamlesh: `3/10` of the amount

Ritika: `2/10` of the amount