Question:

Nidhi, Pranav and Ishu were partners in a firm sharing profits and losses in the ratio of 5 : 4 : 1. With effect from 1st April, 2024, they decided to share profits and losses in the ratio of 4 : 1 : 5. On that date, there was a debit balance of ₹ 4,00,000 in the Profit and Loss Account. The necessary journal entry to show the effect of the above will be :

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Losses in the P and L account are shared by the partners in the old ratio before a change in the profit-sharing ratio.
  • Ishu’s Capital A/c Dr. 1,60,000
    To Nidhi’s Capital A/c 40,000
    To Pranav’s Capital A/c 1,20,000
  • Profit & Loss A/c Dr. 4,00,000
    To Nidhi’s Capital A/c 2,00,000
    To Pranav’s Capital A/c 1,60,000
    To Ishu’s Capital A/c 40,000
  • Nidhi’s Capital A/c Dr. 2,00,000
    Pranav’s Capital A/c Dr. 1,60,000
    Ishu’s Capital A/c Dr. 40,000
    To Profit & Loss A/c 4,00,000
  • Nidhi’s Capital A/c Dr. 40,000
    Pranav’s Capital A/c Dr. 1,20,000
    To Ishu’s Capital A/c 1,60,000
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The Correct Option is B

Solution and Explanation

Debit balance in P&L = Loss = ₹ 4,00,000

To be distributed in old ratio = 5 : 4 : 1

Nidhi = (5/10) × 4,00,000 = ₹ 2,00,000
Pranav = (4/10) × 4,00,000 = ₹ 1,60,000
Ishu = (1/10) × 4,00,000 = ₹ 40,000

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