Rajinder and Surinder are partners in a firm sharing profits in the ratio of 4:1. On April 15, 2017, they admitted Narender as a new partner. On that date, there was a balance of Rs. 20,000 in general reserve and a debit balance of Rs. 10,000 in the profit and loss account of the firm. Which among the following statements is correct for transferring profit and loss account?
Rajinder and Surinder are partners in a firm sharing profits in the ratio of 4:1. On April 15, 2017, they admitted Narender as a new partner. On that date, there was a balance of Rs. 20,000 in general reserve and a debit balance of Rs. 10,000 in the profit and loss account of the firm. Which among the following statements is correct for transferring profit and loss account?
Solution
The Profit and Loss Account shows a debit balance of Rs. 10,000, which represents an accumulated loss. When a new partner is admitted, this loss must be transferred to the old partners' capital accounts in their old profit-sharing ratio before admission.
Profit-sharing ratio of Rajinder and Surinder = 4:1
Total parts = 4 + 1 = 5
Since P&L Account has a debit balance (loss), this will be debited to the partners' capital accounts:
Rajinder's share of loss = Rs. 10,000 × = Rs. 8,000 (Debit)
Surinder's share of loss = Rs. 10,000 × = Rs. 2,000 (Debit)
Journal Entry:
| Particulars | L.F. | Debit (Rs.) | Credit (Rs.) |
|---|---|---|---|
| Rajinder's Capital A/c Dr. | 8,000 | ||
| Surinder's Capital A/c Dr. | 2,000 | ||
| To Profit and Loss A/c | 10,000 | ||
| (Loss transferred to old partners' capital accounts in their profit-sharing ratio) |
Analysis of options:
- Option 1: Incorrect - Rajinder's capital should be debited by Rs. 8,000, not credited by Rs. 16,000
- Option 2: Correct - Surinder's capital will be debited by Rs. 2,000
- Option 3: Incorrect - Rajinder's capital should be debited, not credited
- Option 4: Incorrect - Surinder's capital should be debited by Rs. 2,000, not credited by Rs. 4,000
Note: General Reserve balance is not considered here as the question specifically asks about transferring Profit and Loss Account only.
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