Naresh, Raj Kumar and Bishwajeet are equal partners. Raj Kumar decides to retire. On the date of his retirement, the Balance Sheet of the firm showed the following: General Reserves Rs 36,000 and Profit and Loss Account (Dr.) Rs 15,000. Pass the necessary journal entries to the above effect.
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Given:
- Naresh, Raj Kumar and Bishwajeet are partners in a firm, sharing profits and losses equally.
- Raj Kumar retires.
- The balance sheet show general reserves of Rs 36,000 and a loss of Rs 15,000.
Objective: To pass the necessary journal entries.
Answer:
The general reserves and loss will be divided in their profit-sharing ratio. Since they share it equally, it will be distributed accordingly.
- General reserves entitled to each partner = Rs 36,000 × 1/3 = Rs 12,000
- Loss entitled to each partner = Rs 15,000 × 1/3 = Rs 5,000
Journal entries:
General reserves A/c ... Dr - Rs 36,000
- To Naresh's capital A/c - Rs 12,000
- To Raj Kumar's capital A/c - Rs 12,000
- To Bishwajeet's capital A/c - Rs 12,000
(General reserves transferred to the partners' capital accounts.)
Naresh's capital A/c ... Dr - Rs 5,000
Raj Kumar's capital A/c ... Dr - Rs 5,000
Bishwajeet's capital A/c ... Dr - Rs 5,000
- To profit & loss A/c - Rs 15,000
(Loss written off.)
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