Question

Kamal and vimal were partners in a firm sharing profits in the ratio of 3:2. Ghosh was admitted as a new partner for $\frac{1}{5}th$ share in the profits.
On Ghosh's admission the Balance Sheet of the firm showed a credit balance of $Rs10,000$ in its Profit and Loss Account which was debited by the accountant of the accounts of kamal and Vimal. Did the accountant give correct treatment to the balance of Profit and Loss Account ? If 'yes' give the reason and i 'not' give the correct treatment.

Answer 1

At the time of admission of a partner, the balance of accumulated profits and losses is transferred among the old partners in the old ratio. The capital accounts of the old partners are to be debited or credited depends whether the balance available in the fund is a credit balance or a debit balance. Here, profit and Loss Account had a credit balance of $Rs10,000$. This implies that the capital accounts of the old partners (Kamal and Vimal) should have been credited in the ratio of 3:2 (old ratio). Thus, the accountant has wrongly debited the capital accounts of the old partners.
The correct journal entry in this case is given below.