Adjustment of Accumulated Profits and Losses

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Question : I, O and P were partners in a firm sharing profits and losses in the ratio of 3 : 1 : 1. On 1st

April, 2012, their balance sheet stood as:

BALANCE SHEET

As at 1st April, 2014

They admitted U into partnership for 1/5th share of profits on the above date. The claim on account of

workmen’s compensation is estimated at 13,000 only. Give the necessary journal entries to adjust the

accumulated profits and losses.

Solution:

Date Particulars F Dr. amount Cr. amount

Note:

Employee Provident fund is liability of firm towards employees ,therefore it is not distributed

Machinery Replacement Fund is same as accumulated depreciation , therefore it is not

distributed

Liabilities Amount Assets Amount

Capital-I 1,00,000 Capital-O 30,000 Capital-P 20,000 General Reserve Profit and Loss A/c Investment Fluctuation Reserve Machinery Replacement Fund Workmen’s Compensation Reserve Employees’ Provident Fund Creditors

1,50,000 25,000 35,000 20,000 17,000 23,000 30,000 1,00,000

Land and Building Machinery Investment (Market Value `-28,000) Furniture Current Assets Advertisement Expenditure (Deferred Revenue)

1,50,000 50,000 30,000 27,000 1,18,000 25,000

4,00,000 4,00,000