Question

Geeta, Sunita and Anita were partners in a firm sharing profits in the ratio of $5:3:2$. On $1^{st}$January,2015, they admitted Yogita as a new partner $1/{10}^{th}$ share in the profits. On Yogita's admission the Profit and Loss Account of the firm was showing a debit balance of $Rs.20,000$ which was credited by the accountant of the firm to the Capital Accounts of Geeta, Sunita and Anita in their profit-sharing ratio. Did the accountant give correct treatment? Give reason in support of your answer.

Answer 1

A debit balance of Profit & Loss a/c represents the loss incurred by the firm.
At the time of Yogita’s admission, the loss must be divided amongst the old partners in their old profit-sharing ratio, i.e., 5:3:2.
Hence, the treatment of Profit and Loss a/c (Dr.) is incorrect. It should be debited to the capital accounts of Geeta, Sunita and Anita.