The Balance sheet of Himanshu, Pranav and Tushar who were sharing profits in proportion to their capital stood as follows:
| Balance Sheet as on 31 March 2022 |
|||
| Liabilities | Rs | Assets | Rs |
| Sundry Creditors | 25,000 | Land and Building | 35,000 |
| Investment Fluctuation Fund | 5,000 | Machinery | 45,500 |
| Bills Payable | 10,000 | Stock | 13,000 |
|
Capital: |
70,000 | Debtors | 6,000 |
| Investment | 5,000 | ||
| Bank | 4,000 | ||
| Profit and loss A/c | 1,500 | ||
| 1,10,000 | 1,10,000 | ||
Addition Information:
(a) On 1st April 2022, they admitted Rachit into partnership for 1/6th share in future profit.
(b) Rachit will bring ₹25,000 for capital and ₹15,000 for goodwill.
(c) A provision for doubtful debts of 7% was to be made.
(d) Land and building is to be appreciated to 120%.
(e) Machinery is decreased by ₹1,500.
On the basis of above case give answer to question:
Identify the Journal Entry that is to be recorded for distribution of profit and loss account appearing in the Balance Sheet among partners:
Answer & explanation
Correct answer: option 3
The correct answer is option 3-
Himanshu's Capital A/c Dr. ₹750
Pranav's Capital A/c Dr. ₹450
Tushar's Capital A/c Dr. ₹300
To Profit and Loss A/c ₹1,500
Distribution of profit and loss account will be made in old ratio as it is accumulated loss.
Old ratio between old partners is capital ratio which means 35000:21000:14000
= 5:3:2
Himanshu = 1,500 X 5/10
= 750
Parnav = 1,500 X 3/10
= 450
Tushar = 1,500 X 2/10
= 300
So, Old partners capital will be debited and profit and loss account will be credited.
Journal entry for this -
Himanshu's Capital A/c Dr. 750
Pranav's Capital A/c Dr. 450
Tushar's Capital A/c Dr. 300
To Profit and Loss A/c 1,500