Question

A trading firm has in its ledger book, an accumulated profit balance of Rs. 30,000 in general reserve. The partners Smitha, Neha, and Anila who share profits in the ratio of 3:2:1. They have decided to become equal partners. Show journal entry to adjust the existing general reserve through capital accounts.

Answer 1

Old ratio = 3:2:1 = \(\frac{3}{6} : \frac{2}{6} : \frac{1}{6}\)

New ratio = 1:1:1 = \(\frac{1}{3} : \frac{1}{3} : \frac{1}{3}\)

Smitha's sacrifice = \(\frac{3}{6} - \frac{1}{3} = \frac{3-2}{6} = \frac{1}{6}\)

A's gain = \(\frac{1}{3} = \frac{1}{6} = \frac{2-1}{6} = \frac{1}{6}\)

Share of general reserve = 30,000 × \(\frac{1} {6}\)= 5000 

Anila’s capital A/c Dr. 5000 

To Smitha’s capital 5000 

(Being goodwill adjusted between capital a/c's of Smitha and Anila, 

Neha’s profit sharing ratio remains unchanged (Neha’s old ratio = \(\frac{2}{6} – \frac{1}{3}\), New ratio = \(\frac{1}{3}\).