Question

Anubha and Yuvika were partners in a firm sharing profits and losses in the ratio of 3 : 2. From 1st April 2024, they decided to share future profits and losses in the ratio of 2 : 3. On this date, their balance sheet showed a balance of Rs 50,000 in General Reserve and a debit balance of Rs 2,50,000 in Profit and Loss Account. Partners decided to write off Profit and Loss Account but decided not to distribute the General Reserve. Pass the necessary journal entries for the above transactions on the reconstitution of the firm. Show your workings clearly.

Hint:

When reserves/accumulated profits are *not* to be distributed on reconstitution, pass an adjustment entry: Gaining Partner(s)' Capital A/c Dr. To Sacrificing Partner(s)' Capital A/c. The amount is calculated based on the net effect of reserves/profits multiplied by the gaining/sacrificing share. Accumulated losses must generally be written off in the old ratio.

Answer 1

Working Note 1: Calculation of Gaining / Sacrificing Ratio

Sacrifice / Gain = Old Share − New Share
Anubha: 3/5 − 2/5 = 1/5 (Sacrifice)
Yuvika: 2/5 − 3/5 = −1/5 (Gain)

Working Note 2: Treatment of Accumulated Loss (P&L Debit Balance)

Accumulated loss is written off to partners’ capital accounts in the old ratio (3 : 2).
Anubha’s share = 3/5 × 2,50,000 = ₹1,50,000 (Debit)
Yuvika’s share = 2/5 × 2,50,000 = ₹1,00,000 (Debit)

Working Note 3: Adjustment for General Reserve

General Reserve (₹50,000) is adjusted through capital accounts using the gaining / sacrificing ratio.
Yuvika (gainer) compensates Anubha (sacrificer).
Adjustment amount = 50,000 × 1/5 = ₹10,000

Journal Entries

Date	Particulars	Amount (₹)
1 Apr 2024	Anubha’s Capital A/c  Dr Yuvika’s Capital A/c  Dr     To Profit and Loss A/c (Being accumulated loss written off in old ratio 3 : 2)	1,50,000 1,00,000 2,50,000
1 Apr 2024	Yuvika’s Capital A/c  Dr     To Anubha’s Capital A/c (Being adjustment of General Reserve through capital accounts)	10,000 10,000