Question

(a) X, Y and Z are partners sharing profits and losses in the ratio of 5 : 3 : 2. They admit W as partner for 1/6th share. Following is the extract of the Balance Sheet on the date of admission:

Liabilities	₹	Assets	₹
General Reserve Contingency Reserve Profit and Loss A/c	36,000 6,000 18,000	Advertisement Suspense A/c	24,000

Pass necessary Journal entries.
(b) A and B were partners in a firm sharing profit in 4 : 3 ratio. On 1st April, 2019, they admitted C as a new partner. On the date of C's admission, the Balance Sheet of A and B showed a General Reserve of ₹ 84,000 and a debit balance of ₹ 8,400 in the 'Profit and Loss Account'. Pass necessary Journal entries for the treatment of these items on C's admission.
(c) Give the Journal entry to distribute 'Workmen Compensation Reserve' of ₹ 72,000 at the time of admission of Z, when there is no claim against it. The firm has two partners X and Y.
(d) Give the Journal entry to distribute 'Workmen Compensation Reserve' of ₹ 72,000 at the time of admission of Z, when there is claim of ₹ 48,000 against it. The firm has two partners X and Y .
(e) Give the Journal entry to distribute 'Investment Fluctuation Reserve' of ₹ 24,000 at the time of admission of Z, when Investment (Market Value ₹ 1,10,000) appears at ₹ 1,20,000. The firm has two partners X and Y.
(f) Give the Journal entry to distribute 'General Reserve' of ₹ 4,800 at the time of admission of Z, when 20% of General Reserve is to be transferred to Investment Fluctuation Reserve. The firm has two partners X and Y .
(g) A, B and C were partners sharing profits and losses in the ratio of 6 : 3 : 1. They decide to take D into partnership with effect from 1st April, 2019. The new profit-sharing ratio between A, B, C and D will be 3 : 3 : 3 : 1. They also decide to record the effect of the following without affecting their book values, by passing a single adjustment entry:

	Book Values (₹)
General Reserve	1,50,000
Contingency Reserve	60,000
Profit and Loss A/c (Cr.)	90,000
Advertisement Suspense A/c (Dr.)	1,20,000

Pass the necessary single adjustment entry, through the Partner's Current Account.

Answer 1

Journal
Date	Particulars		L.F.	Debit Amount (₹)	Credit Amount (₹)
2019
April 1	General Reserve A/c	Dr.		36,000
	Contingency Reserve A/c	Dr.		6,000
	Profit & Loss A/c	Dr.		18,000
	To X’s Capital A/c				30,000
	To Y’s Capital A/c				18,000
	To Z’s Capital A/c				12,000
	(Reserves distributed)
	X’s Capital A/c	Dr.		12,000
	Y’s Capital A/c	Dr.		7,200
	Z’s Capital A/c	Dr.		4,800
	To Advertisement Suspense A/c				24,000
	(Advertisement Suspense distributed)
April 1	General Reserve A/c	Dr.		84,000
	To A’s Capital A/c				48,000
	To B’s Capital A/c				36,000
	(General Reserve distributed)
	A’s Capital A/c	Dr		4,800
	B’s Capital A/c	Dr.		3,600
	To Profit & Loss A/c				8,400
	(Profit & Loss A/c distributed)
April 1	Workmen Compensation Reserve A/c	Dr.		72,000
	To X’s Capital A/c				36,000
	To Y’s Capital A/c				36,000
	(Workmen Compensation Reserve distributed)
April 1	Workmen Compensation Reserve A/c	Dr.		72,000
	To Workmen Compensation Claim A/c				48,000
	To X’s Capital A/c				12,000
	To Y’s Capital A/c				12,000
	(Surplus Workmen Compensation Reserve distributed)
April 1	Investment Fluctuation Reserve A/c	Dr.		24,000
	To Investment A/c				10,000
	To X’s Capital A/c				7,000
	To Y’s Capital A/c				7,000
	(Surplus Investment Fluctuation Reserve distributed)
April 1	General Reserve A/c	Dr.		4,800
	To Investment Fluctuation Reserve A/c				960
	To X’s Capital A/c				1,920
	To Y’s Capital A/c				1,920
	(Surplus General Reserve distributed)
April 1	C’s Current A/c	Dr.		36,000
	D’s Current A/c	Dr.		18,000
	To A’s Current A/c				54,000
	(Adjustment entry made)

Working Notes:

WN1: Calculation of Sacrifice or Gain

$\begin{array}{l}\text{A :B :C}=6\text{:3:1 (Old Ratio)}\\ \text{A :B :C :D:}=\text{3:3:3:1 (New Ratio)}\\ \text{Sacrificing (or Gaining) Ratio = Old Ratio - New Ratio}\\ \text{A's share}=\frac{6}{10}-\frac{3}{10}=\frac{6-3}{10}=\frac{3}{10}\text{\hspace{0.17em}(Sacrifice)}\\ \text{B's share}=\frac{3}{10}-\frac{3}{10}=0\\ \text{C's share}=\frac{1}{10}-\frac{3}{10}=\frac{1-3}{10}=-\frac{2}{10}\text{\hspace{0.17em}(Gain)}\\ \text{D's share}=0-\frac{1}{10}=-\frac{1}{10}\text{\hspace{0.17em}(Gain)}\end{array}$
WN2: Calculation of Net Effect

General Reserve	1,50,000
Contingency Reserve	60,000
Profit and Loss A/c (Cr.)	90,000
	3,00,000
Less: Advertisement Suspense A/c (Dr.)	1,20,000
	1,80,000

WN 3: Adjustment of Net Effect
$\begin{array}{l}\text{Amount credited in A's Current A/c = 1,80,000}\times \frac{3}{10}=\text{\hspace{0.17em}Rs 54,000}\\ \text{Amount debited in C's Current A/c = 1,80,000}\times \frac{2}{10}=\text{\hspace{0.17em}Rs 36,000}\\ \text{Amount debited in D's Current A/c = 1,80,000}\times \frac{1}{10}=\text{\hspace{0.17em}Rs 18,000}\end{array}$