Om and Ram are partners in a firm sharing profits and losses equally. With effect from 1 st April, 2019, they decided to share the profits in the ratio 3:2. On this date, they had a general reserve of 40,000 in their balance sheet. It is given that the General Reserve is not to be distributed. What will be the journal entry for the treatment of General Reserve?
Solution:
sacrificing ratio = old ratio - new ratio
Om' s capital A/c. Dr 40000
To Ram's capital A/c. 40000
(Being proportionate amount of general reserve adjusted)
sacrificing ratio = old ratio - new ratio
Om = (1/2) - (3/5)
= (5 - 6)/10
= -1/10
Om is gaining
= (5 - 6)/10
= -1/10
Om is gaining
Ram = (1/2) - (2/5)
= (5 - 4)/10
= 1/10
Ram is sacrificing.
journal entry
= (5 - 4)/10
= 1/10
Ram is sacrificing.
journal entry
| Date | Particular | L.F. | Dr.(Rs) | Cr.(Rs) |
| Om's capital A/c. Dr. | 40,000 | |||
| To Ram's capital A/c | 40,000 | |||
| (Being the amount of general reserved adjusted) |
Om' s capital A/c. Dr 40000
To Ram's capital A/c. 40000
(Being proportionate amount of general reserve adjusted)