Question

Nita, Mita, and Karan were partners in a firm sharing profits and losses in the ratio of 4:3:3. With effect from 1\textsuperscript{st April, 2023, they agreed to share profits and losses in the ratio of 1:2:2. On that date, there was a General Reserve of \rupee 70,000 in the books of the firm. It was agreed that:}
(i) Goodwill of the firm be valued at \rupee 1,00,000.
(ii) Loss on revaluation of assets and re-assessment of liabilities amounted to \rupee 40,000. Pass necessary journal entries for the above transactions in the books of the firm.

Hint:

Adjust goodwill and reserves according to the old and new profit-sharing ratios. Always distribute losses on revaluation in the old ratio.

Answer 1

Distribution of General Reserve: \begin{center} \begin{tabular}{|c|c|c|} Partner & Old Ratio (4:3:3) & Share of \rupee 70,000
Nita & \(4/10\) & \rupee 28,000
Mita & \(3/10\) & \rupee 21,000
Karan & \(3/10\) & \rupee 21,000
\end{tabular} \end{center} Journal Entries: \begin{center} \begin{tabular}{|c|c|c|c|} Date & Particulars & Debit (\rupee) & Credit (\rupee)
2023-04-01 & General Reserve A/c & 70,000 &
& To Nita’s Capital A/c & & 28,000
& To Mita’s Capital A/c & & 21,000
& To Karan’s Capital A/c & & 21,000
2023-04-01 & Revaluation Loss A/c & 40,000 &
& To Nita’s Capital A/c & & 16,000
& To Mita’s Capital A/c & & 12,000
& To Karan’s Capital A/c & & 12,000
2023-04-01 & Nita’s Capital A/c & 20,000 &
& To Mita’s Capital A/c & & 10,000
& To Karan’s Capital A/c & & 10,000
\end{tabular} \end{center}