Question

Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 5 : 3. On 1st January, 2007, they admitted Om as a new partner. On the date of Om's admission, the balance sheet of Leela and Meeta showed a balance of Rs.16,000 in general reserve and Rs. 24,000 (Cr) in profit and loss account. Record necessary journal entries for the treatment of these items on Om's admission. The new profit sharing ratio between Leela, Meeta and Om was 5 : 3 : 2.

Answer 1

Items like reserves, goodwill, debit or credit balance of profit and loss account, accumulated profits etc shown in old balance sheet at the time of admission are to be written off among old partners in old profit sharing ratio.

$\text{Journal Entries}$
$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{L.F}& \text{Amt.(Dr)}& \text{Amt.(Cr)}\\ \text{(i)}& \text{General Reserve A/c}\text{Dr}& & 16,000& \\ & \text{To Leela's Capital A/c}& & & 10,000\\ & \text{To Meeta's Capital A/c}& & & 6,000\\ & \text{(General resevre written off among old}& & & \\ & \text{partners in old profit sharing ratio.)}& & & \\ & \underset{–}{}& & & \\ \text{(ii)}& \text{Ptofit and Loss A/c}\text{Dr}& & 24,000& \\ & \text{To Leela's Capital A/c}& & & 15,000\\ & \text{To Meeta's Capital A/c}& & & 9,000\\ & \text{(Profit and loss account credit balance written off among}& & & \\ & \text{old partners in old profit sharing ratio.)}& & & \end{array}$

Note: One single compound entry can be passed in place of above two entries.