A, B and C are partners in a firm 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, a debit balance of ₹75,000 in the Profit & Loss Account appeared in the Balance Sheet and partners decided to pass an adjusting entry for it.
Which of the undermentioned options reflects the correct treatment for the above information?
Answer & explanation
Correct answer: option 1
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
The debit balance of Profit & Loss Account is an accumulated loss. It belongs to the old ratio 2 : 2 : 1. If it stays in the books, it will later be borne in the new ratio 5 : 3 : 2, so an adjusting entry is passed for the difference.
A: old share 2/5 = 4/10, new share 5/10 → gain 1/10
B: old share 2/5 = 4/10, new share 3/10 → sacrifice 1/10
C: old share 1/5 = 2/10, new share 2/10 → no change
Adjustment = ₹75,000 × 1/10 = ₹7,500
For a loss the entry is the reverse of that for a reserve: the sacrificing partner (B) is debited and the gaining partner (A) is credited, because A would otherwise bear ₹7,500 more of an old loss and B ₹7,500 less.
Entry: B’s Capital A/c Dr. ₹7,500 To A’s Capital A/c ₹7,500
NCERT (2026-27 edition): |