Page 143 - VIRANSH COACHING CLASSES

These reserves are on the Liability side of Balance Sheet therefore transferred on credit side of
partner’s Capital / Current A/c.
Any type of Reserve / Accumulated profits A/c ................................Dr.
To Partners’ Capital / Current A/c
(Being reserve / accumulated profits transferred to partners)
Accumulated Loss is the loss sustained by the old partners before admitting the new partner & it
is undistributed loss. It appears on the Assets side of Balance-sheet therefore transferred on the debit
side of Partners Capital/Current A/c e.g. Profit Loss A/c (Debit Balance) Preliminary Expenses

Partner’s Capital / Current A/c ................................Dr.
To Accumulated loss
(Being accumulated loss transferred to partners)

3.2.8 Adjustment of Capitals
Sometimes capitals of all partners are to be adjusted in the new profit sharing ratio after the
admission of new partner. The capitals of the partners may be adjusted in any one of the following
ways.
(1) Capitals of old partners may be adjusted on the basis of the capital of the new partner
In this case, capital of the new partner is taken as base to find out the total capital. The total
capital can be calculated as follows : -
Total Capital = New partner’s capital × Reciprocal of his PSR (Profit sharing ratio)
e.g. ‘Z’ is admitted in the firm with 1/5 share of the profits of the firm. ‘Z’ contributes `
th
50,000 as his capital. ‘X’ and ‘Y’ the other two partners were sharing profits in the ratio of 2:3.

Then the required capital of X and Y should be calculated as follows.:

Calculation of New profit sharing ratio:

X’ s Share of Profits = 2/5 × (1- 1/5) = 2/5 × 4/5 = 8/ 25
Y’ s Share of Profits = 3/5 × (1- 1/5) = 3/5 × 4/5 = 12/ 25
Z’ s Share of Profits = 1/5 = 5 / 25
So new ratio is 8:12:5

Calculation of New Capital :
If Z’ Capital / Share is ` 50,000, then the total capital of the firm has to be ` 50,000 × 5/1 = `
2,50,000
X’s share should be ` 2,50,000 × 8/25 = ` 80,000
Y’s share should be ` 2,50,000 × 12/25 = ` 1,20,000

(2) Capitals of the new partner may be determined on the basis of the total capital of the old part-
ners: In this case, new partner is required to bring his share of capital in proportion to total
capital of old partner’s. It is calculated as follows:

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