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Illustrations · Illustration 22

Q.Rajinder and Surinder are partners in a firm sharing profits in the ratio of 4:1. On April 15, 2017 they admit Narender as a new partner. On that date there was a balance of ₹20,000 in general reserve and a debit balance of ₹10,000 in the profit and loss account of the firm. Pass necessary journal entries regarding adjustment of accumulated profit or loss.

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Distribute both items in the old ratio 4:1: General Reserve ₹20,000 credited to Rajinder ₹16,000 and Surinder ₹4,000; the ₹10,000 P&L debit balance charged to Rajinder ₹8,000 and Surinder ₹2,000.

Concept

A new partner has no claim on profits earned, and no responsibility for losses incurred, before admission. So any accumulated profits (general reserve, reserve fund, credit balance of Profit and Loss A/c) and accumulated losses (debit balance of Profit and Loss A/c, deferred revenue expenditure) sitting in the balance sheet must be cleared out to the old partners in their old profit-sharing ratio before the new partner comes in. This is a routine NCERT Class 12 Accountancy admission adjustment, and it is kept separate from the revaluation of assets and liabilities — these balances are simply transferred, not revalued.

Working Notes

Old ratio (Rajinder : Surinder) = 4:1.

  • General Reserve (accumulated profit) = ₹20,000
    • Rajinder = ₹20,000 × 4/5 = ₹16,000
    • Surinder = ₹20,000 × 1/5 = ₹4,000
  • Profit and Loss A/c debit balance (accumulated loss) = ₹10,000
    • Rajinder = ₹10,000 × 4/5 = ₹8,000
    • Surinder = ₹10,000 × 1/5 = ₹2,000

Solution

Books of Rajinder, Surinder and Narender — Journal

DateParticularsL.F.Debit (₹)Credit (₹)
2017 Apr. 15General Reserve A/c ... Dr.20,000
    To Rajinder's Capital A/c16,000
    To Surinder's Capital A/c4,000
(General Reserve balance transferred to old partners' capital accounts in old ratio 4:1 on Narender's admission)

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