Question

Rambha and Urvashi were partners in a firm sharing profits and losses in the ratio of 13 : 12. From 1^st April, 2024, they decided to share future profits and losses in the ratio of 12 : 13. On this date, their balance sheet showed a debit balance of ₹ 2,50,000 in Advertising Suspense Account and a balance of ₹ 5,00,000 in Contingency Reserve. Partners decide to write off the balance of the Advertising Suspense Account but decided not to distribute Contingency Reserve.

Pass necessary journal entries for the above transactions on there constitution of the firm. Show your working clearly.

Answer 1

Journal
Date	Particulars	L.F.	Amount (₹)	Amount (₹)
2023
April-1	Rambha’s Capital A/с    ...Dr.		1,30,000	-
	Urvashi’s Capital A/c    ...Dr.		1,20,000	-
	To Advertising Suspense A/c		-	2,50,000
	(Being advertising suspense balance written off in old ratio)
	Urvashi’s Capital A/c    ...Dr.		20,000	-
	To Rambha’s Capital A/c		-	20,000
	(Being Contengency reserve adjusted)

Working Notes:

Old Ratio = 13 : 12

New Ratio = 12 : 13

Rambha = `13/25-12/25=1/25` (Sacrifice)

Urvashi = `12/25-13/25=-1/25` (Gain)

Contingency Reserve to be adjusted with = 5,00,000 × `1/25`

= ₹ 20,000