A & B are partners sharing profits & losses in the ratio of 3 : 2. They admit C for 1/4th share in the profits. On the date of admission, there exists a General Reserve of ₹4,60,000. They decided to retain it in the new Balance Sheet. The accounting treatment for it would be :
Answer & explanation
Correct answer: option 1
The correct answer is option 1- C's capital A/c will be debited by ₹1,15,000.
C's share = 1/4
Total share = 1
Remaining share = 1-1/4
=3/4
This 3/4 is divided into old partners in their old ratio to know their new share.
A's new share = 3/4 x 3/5
= 9/20
B's new share = 3/4 x 2/5
= 6/20
New ratio between A, B & C is 9/20:6/20:1/4 or 9/20:6/20:5/20
= 9:6:5
Sacrifice of A = 3/5 - 9/20
= (12-9)/20
= 3/20
Sacrifice of B = 2/5 - 6/20
= (8-6)/20
= 2/20
Sacrificing ratio is 3:2
General reserve is ₹460000. To retain it in the balance sheet New partner will compensate his share in it to sacrificing partners.
C's share = 4,60,000 x 1/4
= 1,15,000
A's share = 1,15,000 x 3/5
= 69,000
B's share = 1,15,000 x 2/5
= 46,000
So journal entry will be-
C's capital A/c Dr. ₹1,15,000
To A's capital A/c ₹69,000
To B's capital A/c ₹46,000