Question

Anubhav, Shagun and Pulkit are partners in a firm sharing profits and losses in the ratio of 2:2:1. On 1st April 2021, they decided to change their profit-sharing ratio to 5:3:2. On that date, debit balance of Profit & Loss A/c ₹30,000 appeared in the balance sheet and partners decided to pass an adjusting entry for it.

Which of the undermentioned options reflect correct treatment for the above treatment?

(A) Shagun's capital account will be debited by ₹3,000 and Anubhav’s capital account credited by ₹3,000

(B) Pulkit's capital account will be credited by ₹3,000 and Shagun's capital account will be credited by ₹3,000

(C) Shagun's capital account will be debited by ₹30,000 and Anubhav’s capital account credited by ₹30,000

(D) Shagun's capital account will be debited by ₹3,000 and Anubhav’s and Pulkit’s capital account credited by ₹2,000 and ₹1,000 respectively.

 

@doubtly

Answer 1

Correct option is: (A) Shagun's capital account will be debited by ₹3,000 and Anubhav’s capital account credited by ₹3,000

Answer 2

The correct treatment for the adjusting entry in this case would be option (A) Shagun's capital account will be debited by ₹3,000 and Anubhav’s capital account credited by ₹3,000.

Here's the explanation:

When partners decide to change their profit-sharing ratio, any existing profit or loss balance in the Profit & Loss Account needs to be adjusted among the partners based on the new ratio. In this case, there is a debit balance of ₹30,000 in the Profit & Loss Account.

According to the new profit-sharing ratio of 5:3:2, Shagun's share is 5/10, Anubhav's share is 3/10, and Pulkit's share is 2/10.

To adjust the debit balance, the partners' capital accounts need to be adjusted. Since Shagun's share is 5/10 of the total, she will bear 5/10 of the debit balance, which is (5/10) × ₹30,000 = ₹15,000. This amount will be debited from Shagun's capital account.

Similarly, Anubhav's share is 3/10 of the total, so he will bear 3/10 of the debit balance, which is (3/10) × ₹30,000 = ₹9,000. This amount will be credited to Anubhav's capital account.

Therefore, the correct treatment for the adjusting entry is to debit Shagun's capital account by ₹3,000 and credit Anubhav’s capital account by ₹3,000.