A partnership firm with partners A, B and C sharing profits in the ratio of 2 : 2 :1. On 1st April, 2022 they decided to change the profit sharing ratio to 5 : 3 : 2. On that date debit balance of Profit & Loss Account was ₹75,000 appeared in the Balance Sheet and partners decided to pass an adjusting entry for it.
Which of the undermentioned options reflect the correct treatment for the above information?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → B's capital Account will be debited by ₹7,500 and A's capital Account will be credited by the same amount
The debit balance of Profit & Loss Account is an accumulated loss. It belongs to the old ratio 2 : 2 : 1. If it stays in the books, it will later be borne in the new ratio 5 : 3 : 2, so an adjusting entry is passed for the difference.
A: old share 2/5 = 4/10, new share 5/10 → gain 1/10
B: old share 2/5 = 4/10, new share 3/10 → sacrifice 1/10
C: old share 1/5 = 2/10, new share 2/10 → no change
Adjustment = ₹75,000 × 1/10 = ₹7,500
For a loss the entry is the reverse of that for a reserve: the sacrificing partner (B) is debited and the gaining partner (A) is credited, because A would otherwise bear ₹7,500 more of an old loss and B ₹7,500 less.
Entry: B’s Capital A/c Dr. ₹7,500 To A’s Capital A/c ₹7,500
NCERT (2026-27 edition): |