Answer based on following information
Azad and Babli are partners in a firm sharing profits and losses in the ratio of 2 : 1. Chintan is admitted into the firm with 1/4 share in profits. Chintan will bring in ₹30,000 as his capital and the capitals of Azad and Babli are to be adjusted in the profit sharing ratio. The Balance sheet of Azad and Babli as on December 31, 2016 (before Chintan's admission) was as follows:
|
Liabilities |
Amount (₹) |
Assets |
Amount (₹) |
|
Creditors |
8,000 |
Cash in hand |
2,000 |
|
Bills payable |
4,000 |
Cash in bank |
10,000 |
|
General reserve |
6,000 |
Sundry debtors |
8,000 |
|
Capital accounts: *Azad 50,000 *Babli 32,000 |
82,000 |
Stock
|
10,000
|
|
|
|
Furniture |
5,000 |
|
|
|
Machinery |
25,000 |
|
|
|
Building |
40,000 |
|
|
1,00,000 |
|
1,00,000 |
It was agreed that:
(i) Chintan will bring in ₹12,000 as his share of goodwill premium.
(ii) Buildings were valued at ₹45,000, and Machinery at ₹23,000.
(iii) A provision for doubtful debts is to be created at 6% on debtors.
(iv) The capital accounts of Azad and Babli are to be adjusted by opening current accounts.
State journal entry to be passed for treatment of general reserve.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → General Reserve A/c Dr. 6000 To Azad's capital A/c 4000 To Babli's capital A/c 2000
General reserve is a profit earned before Chintan joined, so it belongs only to the old partners and is credited to them in their old ratio 2 : 1.
Azad = ₹6,000 × 2/3 = ₹4,000
Babli = ₹6,000 × 1/3 = ₹2,000
The new partner gets no part of it, and the entry debits General Reserve A/c and credits the old partners’ capital accounts.
NCERT (2026-27 edition):
|
