A partnership firm with partners A, B and C sharing profits in the ratio of 2 : 2 : 1. On 1^st 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 (A, B & C)
New ratio = 5:3:2 (A, B & C)

Sacrificed share = Old share - New share

Sacrifice of A = 2/5 - 5/10
                    = (4-5)/10
                    = -1/10 (as it is negative so it is gain)

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

Sacrifice of C = 1/5 - 2/10
                    = (2-2)/10
                    = 0 (no sacrifice no gain)

Thus, B sacrifices and A gains.

Debit balance of Profit & Loss Account = ₹75,000

B's share = 75,000 x 1/10
              = 7,500

As it is loss so B will compensate A. The journal entry for this is as follows-
B's Capital A/c Dr. 7,500
    To A's Capital A/c     7,500