Question

Manav, Mayank and Manish were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 31st March, 2024, their Balance Sheet showed a debit balance of ₹60,000 in the Profit and Loss Account. They decided that from 1st April, 2024 they will share profits in the ratio of 2 : 2 : 1. The journal entry for writing off the debit balance of Profit and Loss Account on reconstitution of the firm will be:

• A. Manav’s Capital A/c Dr. ₹30,000
     Mayank’s Capital A/c Dr. ₹18,000 
      Manish’s Capital A/c Dr. ₹12,000
          To Profit and Loss A/c ₹60,000
• B. Manav’s Capital A/c Dr. ₹24,000
     Mayank’s Capital A/c Dr. ₹24,000
      Manish’s Capital A/c Dr. ₹12,000 
          To Profit and Loss A/c ₹60,000
• C. Mayank’s Capital A/c Dr. ₹6,000
          To Manav’s Capital A/c ₹6,000
• D. Manav’s Capital A/c Dr. ₹6,000
          To Mayank’s Capital A/c ₹6,000

Hint:

Always write off past accumulated losses in the old profit-sharing ratio before introducing a change in the profit ratio or admitting/retiring partners.

Answer 1

The Correct Option is A

The debit balance of the Profit and Loss Account represents a loss that must be borne by the partners in their **old profit-sharing ratio**, as it pertains to the past.
Old Ratio = 5 : 3 : 2
Total = 5 + 3 + 2 = 10 parts
Now allocate ₹60,000 in this ratio:
Manav’s share = $\dfrac{5}{10} \times 60,000 = ₹30,000$
Mayank’s share = $\dfrac{3}{10} \times 60,000 = ₹18,000$
Manish’s share = $\dfrac{2}{10} \times 60,000 = ₹12,000$
Journal Entry:
Manav’s Capital A/c Dr. \hfill 30,000
Mayank’s Capital A/c Dr. \hfill 18,000
Manish’s Capital A/c Dr. \hfill 12,000
To Profit and Loss A/c \hfill 60,000
This entry correctly writes off the debit balance of the Profit and Loss Account by debiting the partners’ capital accounts in their old ratio.
Options (B), (C), and (D) either apply the wrong ratio or adjust between partners directly, which is incorrect for loss write-off.