Question

A and B are partners sharing profits in the ratio of 4 : 3. Their Balance Sheet as at 31st March, 2019 stood as:​

Liabilities		Amount (₹)	Assets	Amount (₹)
Sundry Creditors		28,000	Cash	20,000
Reserve		42,000	Sundry Debtors	1,20,000
Capital A/cs:			Stock	1,40,000
A	2,40,000		Fixed Assets	1,50,000
B	1,20,000	3,60,000
		4,30,000		4,30,000

​ They decided that with effect from 1st April, 2019, they will share profits and losses in the ratio of 2 : 1. For this purpose they decided that:
(i) Fixed Assets are to be reduced by 10%.
(ii) A Provision for Doubtful Debts of 6% be made on Sundry Debtors.
(iii) Stock be valued at ₹ 1,90,000.
(iv) An amount of ₹ 3,700 included in Creditors is not likely to be claimed .
Partners decided to record the revised values in the books. However, they do not want to disturb the Reserve. You are required to pass Journal entries, prepare Capital Accounts of Partners and the revised Balance Sheet.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019 April 1	A’s Capital A/c	Dr.		4,000
	To B’s Capital A/c				4,000
	(Adjustment of General Reserve on change in profit sharing ratio)

Partners’ Capital Accounts
Dr.			Cr.
Particulars	A	B		Particulars	A	B
B’s Capital A/c	4,000	–		Balance b/d	2,40,000	1,20,000
(Adjustment of General Reserve)				Revaluation (Profit)	18,000	13,500
Balance c/d	2,54,000	1,37,500		A’s Capital A/c	–	4,000
				(Adjustment of General Reserve)
	2,58,000	1,37,500			2,58,000	1,37,500

Balance Sheet as on 01st April, 2019
Liabilities		Amount (₹)	Assets		Amount (₹)
Sunday Creditors (28,000 –3,700)		24,300	Cash		20,000
General Reserve		42,000	Sundry Debtors	1,20,000
Capital Account			Less: Provision for Doubtful Debts	(7,200)	1,12,800
A	2,54,000		Stock		1,90,000
B	1,37,500	3,91,500	Fixed Assets (1,50,000 – 15,000)		1,35,000
		4,57,800			4,57,800

Working Notes:

WN 1 Calculation of Sacrificing (or Gaining) Ratio

Old Ratio (A and B) = 4 : 3

New Ratio (A and B) = 2 : 1

Sacrificing (or Gaining) Ratio = Old Ratio − New Ratio

WN 2 Adjustment of General Reserve

WN 3

Revaluation Account
Dr.				Cr.
Particulars		Amount (₹)	Particulars	Amount (₹)
Fixed Assets		15,000	Stock	50,000
Provision for Doubtful Debts (1,20,000 × 6%)		7,200	Creditors	3,700
Profit transferred to:
A’s Capital A/c	18,000
B’s Capital A/c	13,500	31,500
		53,700		53,700