Question

Jim and Joy were partners in a firm sharing profits and losses equally. On 1st April, 2024, they admitted John as a new partner for \(\frac{1}{5}\) share in the profits of the firm. On the date of John’s admission, the Balance Sheet of Jim and Joy showed a debit balance of 45,000 in the Profit and Loss Account. 
From the following, what will be the accounting treatment for this balance on John’s admission?

• A. Debit Jim and Joy by 22,500 each and Credit Profit and Loss Account by 45,000.
• B. Debit Jim and Joy by 18,000 each, Debit John by 9,000 and Credit Profit and Loss Account by 45,000.
• C. Debit John by 45,000 and Credit Jim and Joy by 22,500 each.
• D. Debit Profit and Loss Account by 45,000 and Credit Jim and Joy by 22,500 each.

Hint:

Any accumulated losses (like debit balance in P&L A/c) should be borne by old partners in the old ratio before the admission of a new partner.

Answer 1

The Correct Option is A

Step 1: Loss appearing in the Profit and Loss Account = 45,000
Step 2: This loss occurred before the admission of the new partner, so it must be borne by the existing partners in their old ratio.
Step 3: Jim and Joy shared profits and losses equally = 1 : 1
Each partner’s share of the loss = \(\frac{1}{2} \times 45,000 = 22,500\)
Jim’s Capital A/c Dr. & 22,500
Joy’s Capital A/c Dr. & 22,500
To Profit and Loss A/c & 45,000