Aman and Raman are partners sharing profit in the ratio of 2:3. They a

Aman and Raman are partners sharing profit in the ratio of 2:3. They admit Mohan as as new partner for 1/5 shares in profits. On that date the balance sheet of the firm shows a balance of Rs.20,000 in general reserve and Profit and Loss A/c balance of Rs.15,000. Pass the necessary journal entries when: (i) Old P&L A/c and General Reserve balances are not to appear in the new firm’s books.(ii) Old P&L A/c and General Reserve balances are to appear in the new firm’s books.

Answer»

(i) When Old P&L A/c and General Reserve balances are not to appear in the new firm’s books.

Journal

Date	Particulars	Dr	Cr.
	P&L A/c Dr.	15,000
	General Reserve A/c Dr.	20,000
	To Aman’s Capital A/c		14,000
	To Raman’s Capital A/c		21,000
	(for the amount of P&l A/c and General reserve distributed among the partners)

(ii) When Old P&L A/c and General Reserve balances are to appear in the new firm’s books.

Journal

Date	Particulars	Dr.	Cr.
	P&L A/c Dr.	15,000
	General Reserve A/c Dr.	20,000
	To Aman’s Capital A/c		14,000
	To Raman’s Capital A/c		21,000
	(for the amount of P&l A/c and General reserve distributed among the partners)
	Aman’s Capital A/c Dr.	11,200
	Raman’s Capital A/c Dr.	16,800
	Mohan’s Capital A/c Dr.	7,000
	To P&L A/c		15,000
	To General Reserve A/c		20,000
	(for the amount credited to partners written off)

Adjustment of Partners' Capital

Adjustment of Partners’ Capital can be any of the following:

A. Calculation of New Partner's Capital on the basis of Old Partners’ Capital

B. Adjustment of Old Partners’ Capital on the basis of New Partner's Capital

These cases are further explained with the help of illustrations.