Question

X, Y are partners sharing profits in the ratio of 2 : 1 . On 31st March, 2018, their Balance Sheet showed General Reserve of ₹ 60,000. It was decided that in future they will share profits and losses in the ratio of 3 : 2 . Pass necessary journal entry in each of the following alternative cases :
(i) If General Reserve is not to be shown in the new Balance Sheet .
(ii) If General Reserve is to be shown in the new Balance Sheet .

Answer 1

(i) If they do not want to show General Reserve in the new Balance Sheet

Journal
Date 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
	General Reserve A/c	Dr.		60,000
April 1	To X’s Capital A/c				40,000
	To Y’s Capital A/c				20,000
	(Adjustment of balance in General Reserve A/c in old ratio)

Working Notes:

WN1 Calculation of Share of General Reserve

$$\begin{gathered} \mathrm{X}\text{'}\mathrm{s}\mathrm{share}=60,000\times \frac{2}{3}=40,000 \\ \mathrm{Y}\text{'}\mathrm{s}\mathrm{share}=60,000\times \frac{1}{3}=20,000 \end{gathered}$$

(ii) If they want to show General Reserve in the new Balance Sheet

Journal
Date 2018	Particulars		L.F.	Debit Amount (Rs)	Credit Amount (Rs)
April 1	Y’s Capital A/c	Dr.		4,000
	To X’s Capital A/c				4,000
	(Adjustment of balance in General Reserve A/c in sacrificing/gaining ratio)

Working Notes:

WN1 Calculation of Gain/Sacrfice

$$\begin{gathered} \mathrm{Sacrificing}\mathrm{Ratio}=\mathrm{Old}\mathrm{Ratio}-\mathrm{New}\mathrm{Ratio} \\ \mathrm{X}=\frac{2}{3}-\frac{3}{5}=\frac{1}{15}\left(\mathrm{sacrifice}\right) \\ \mathrm{Y}=\frac{1}{3}-\frac{2}{5}=-\frac{1}{15}\left(\mathrm{gain}\right) \end{gathered}$$

WN2 Calculation of Compensation by Y to X

$\mathrm{Amount}\mathrm{to}\mathrm{be}\mathrm{compensated}=60,000\times \frac{1}{15}=4,000$