Page 9 - L N (change in psr)

Adjustment of Accumulated Profits, Losses and Reserve through

Partners’ Capital Accounts, i.e. When Accumulated Profits, Losses and

Reserves are to be retained in the Books:

I. If the partners of the firm decide that the existing balances of Profit and

Loss Account or Reserve should continue to appear at the same amount in

the Balance Sheet of the reconstituted firm, then an adjustment entry for
the net effect of accumulated profits, losses and reserves is passed since
they were earned in past.

II. Such entry is passed through the Partners’ Capital Accounts using the

following steps:

Step 1: Net effect of Reserves, Accumulated Profits and Losses is to be

calculated.
Step 2: Gain/Loss of Share is to be calculated.

Step 3: Share of Gaining and Sacrificing Partners in the Net Accumulated
Profits, Losses and Reserves is to be calculated as below: Gained For

Gaining Partner = Net Effect Share  are Sacrificed For Sacrificing Partner
= Net Effect Sh

Step 4: Adjustment entries are to be passed as follows:

In case if Positive Effect (Net Profit):
Gaining Partners’ Capital/Current A/cs …Dr.
To Sacrificing Partners’ Capital/Current A/cs

In case of Negative Effect (Net Loss):
Sacrificing Partners’ Capital/Current A/cs …Dr.
To Gaining Partners’ Capital/Current A/cs