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?

B's capital Account will be debited by ₹7,500 and A's capital Account will be credited by the same amount

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.

Old ratio = 2:2:1
New ratio = 5:3:2
Sacrifice of A = 2/5 - 5/10
                   = (4-5)/10
                    = -1/10 (gain)

Sacrifice of B = 2/5 - 3/10
                   = (4-3)/10
                    = 1/10

Sacrifice of C = 1/5 - 2/10
                   = (2-2)/10
                   = 0

Thus, C neither sacrifice nor gains. A gains and B sacrifice.
So, B will compensate loss to A.
Profit and loss Dr. balance = ₹75000
B share = 75000 x 1/10
             = 7500

Journal entry for this-
B's Capital A/c  Dr. ₹7500
    To A's Capital A/c   ₹7500

The following entries are passed  for adjusting the accumulated losses and profits.

For profit - Gaining partner's capital A/c Dr. To Sacrificing partners capital A/c.
For loss - Sacrificing partners capital A/c. Dr. To Gaining partner's capital A/c