ADJUSTMENTS WITH REGARDS TO RETAINED EARNINGS AND ACCUMULATED LOSSES ADMISSION OF A PARTNER

At the time of admission of a new partner any balance in the retained earnings account and accumulated losses must be transferred to the Capital of the existing partners in the existing profit sharing ratio. The journal entry to be passed will be as below:
(1) Profit and Loss Account General Reserve Account Other Retained Earnings Account To Existing Partners Capital Account

if there is any accumulated loss, it must be transferred to the existing partners Capital Account by passing the below journal entry:
(2) Existing Partners Capital Account To Profit and Loss Account

All partners may decide that the reserve to be represented in the books of the new firm at its actual number. Under this circumstance, reserve is written off by giving debit to reserve a/c and credit to exiting partners capital a/c. Accounts in the existing profit sharing ratio, reserve is created in the books at the actual value by giving debit to all partners capital account and credit to reserve account in the new profit sharing ratio.
(1) General Reserve Account To Existing Partners Capital Account (Existing Ratio) (Being General Reserve transferred to existing partners capital a/c) (2) All Partners Capital Accounts (New Ratio)

To General Reserve Account (Agreed Value) (Being General Reserve brought back in the account books by giving debit to all partners in the new ratio)

S, T and U were partners with a sharing ratio of 3:2:1. Following is their balance sheet as on 31st Dec 2012.
Liabilities Capital of S Capital of T Capital of U $ 15,000 10,000 5,000 Furniture Stock Assets Land and Building $ 25,000 7,500 10,000

Reserve
Accounts Payable Bills Payable

14,900
3,100 2,000 50,000

Bills Receivable
Accounts Receivables Cash at Bank

2,500
3,750 1,250 50,000

V is admitted as a partner on 1.1.2013 on the following conditions: Vs capital to be$7,500 and $6,000 as premium for goodwill, half the premium will be withdrawn by the partners. Vs share of profits will be 1/6th, the assets will be revalued as Land - $28,000, furniture - $6,000, Accounts Receivables

$3,500, Stock $8,000, the claim of a creditor for $1,150 is paid at $1,000 and half of the reserve to be withdrawn by the partners. Create required ledger accounts and opening balance sheet of the new partnership firm.

Revaluation Account Particulars Furniture A/c Stock A/c Accounts Receivables A/c $ 1,500 2,000 250 3,750 Particulars Land and Building A/c Accounts Payable Discount Partners Capital A/c (S-$300, T-$200, U-$100) 600 3,750 $ 3,000 150

Partners Capital Account Particulars Revaluation Ac Bank Reserve Bank Premium To Balance C/d S 300 3,725 1,500 19,925 25,450 T 200 2,484 1,000 13,283 16,967 U 100 1,242 500 6,641 8,483 V 7,500 7,500 Particulars By Bal B/d Reserve Premium Bank S 15,000 7,450 3,000 25,450 T 10,000 4,967 2,000 16,967 U 5,000 2,483 1,000 8,483 V 7,500 7,500

Bank Account Particulars $ Particulars $

To Balance B/d
To Premium for goodwill To V Capital A/c

1,250 By Partners Capital-Premium

6,000 By Partners Capital-Reserve 7,500 By Accounts Payable By Balance C/d

3,000
7,450 1,000 3,300

14,750

14,750

Balance Sheet as on 1st January 2013

Particulars
Capital S Capital T Capital U Capital V Accounts Payable (3,100-1,150) Bills Payable

Particulars

$
28,000 6,000 8,000 2,500 3,500 6,500 51,300

19,925 Land and Building 13,283 Furniture 6,641 Stock 7,500 Bills Receivables 1,950 Accounts Receivables 2,000 Cash at Bank 51,300

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