P and Q are partners in a firm sharing profits in the ratio of 3 : 2. They decided to share profits equally in future. Their Balance Sheet showed 50,000 in General Reserve and 20,000 as Profit and Loss (Dr.) Balance. The adjusted entry, if they don't wish to alter General Reserve and Profit and Loss is:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) - Debit Q's Capital A/c by Rs 3,000, Credit P's Capital A/c by Rs 3,000.
Old ratio = 3:2
New ratio = 1:1
Sacrificing share of P = 3/5 - 1/2
= (6-5)/10
= 1/10
Sacrificing share of Q = 2/5 - 1/2
= (4-5)/10
= - 1/10 (GAIN)
General reserve = 50,000
P & L Dr. balance = 20,000
Net balance = (50,000 - 20,000)
= ₹30,000
Share = 30,000 x 1/10
= 3,000
Gaining partner will compensate sacrificing partner for ₹3,000.
SO, JOURNAL ENTRY WILL BE-
Q's Capital A/c Dr. ₹3,000
To P's Capital A/c ₹3,000