Question

A, B, and C are partners sharing profits in the ratio of $5:3:2.$ They decided to share future profits in the ratio of $2:3:5$ with effect from $1st$ April $,2018.$ They also decided to adjust the following accumulated profit, losses and reserves without affecting their book values, by passing an adjustment entry:

	Book value (Rs.)
Profit and Loss A/c	15,000
General Reserve	60,000
Advertising Suspense A/c	30,000

The necessary adjustment entry will be:

• A. Dr. C and Cr. A with Rs. 31,500.
• B. Dr. A and Cr. C with Rs. 13,500.
• C. Dr. B and Cr. A with Rs. 13,500.
• D. Dr. A and Cr. B with Rs. 13,500.

Answer 1

Answer: (A)

Dr. C and Cr. A with Rs. 31,500.

To get the adjustment entry done, first need to find out the distribution of accumulated profit /loss. Since books of account are not to be affected due to change in profit sharing ratio , hence an adjustment entry need to be passed:

Below are the accumulated profits need to be distributed:

Particulars Book Value

Profit & Loss A/c 15000

General Reserve 60000

Advertising Suspense A/c 30000

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Total Surplus 105000

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Share in Accumulated Profits: A B C

As per old Ratio 52500 31500 21000

As per New Ratio 21000 31500 52500

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(Sacrifice)/Gain (31500) NIL 31500

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Hence below adjustment entry will be passed:

C's Capital A/c Dr. 31500

To A's Capital A/c 31500