Why do we debit gaining and credit sacrificing partner when reserves are to be shown in new balance sheet. ?
Rahul, in adjusting entry, gaining partners' capital account will be debited because he (or they) will compensate the sacrificing partner(s) for the share of the sacrifice.
Let us understand this situation with the help of an example.
X and Y are partners sharing profits and losses in the equal ratio. Their books showed General Reserve of Rs 50,000. They decided to share future profits and losses in the ratio of 3 : 2 and will show the general reserve in the New Balance Sheet.
According to old ratio 1 : 1, their share in general reserve should be Rs 25,000 each..right?
Since, in the future, they will share profit and losses in the ratio of 3 : 2, so they will be entitled to get X - Rs 30,000 (50,000*3/5) and Y -Rs 20,000 (50,000*2/5).
Now, at present Y is entitled to get Rs 25,000 but in future he will get Rs 20,000...is it justified? Obviously not. Therefore, X, a gaining partner with Rs 5,000 (30,000 - 25,000), will compensate him for his share of sacrifice by adjusting the amount through capital account. So, X's Capital A/c is debited, being decrease in capital and Y's Capital A/c is credited, being increase in capital.
Let us understand this situation with the help of an example.
X and Y are partners sharing profits and losses in the equal ratio. Their books showed General Reserve of Rs 50,000. They decided to share future profits and losses in the ratio of 3 : 2 and will show the general reserve in the New Balance Sheet.
According to old ratio 1 : 1, their share in general reserve should be Rs 25,000 each..right?
Since, in the future, they will share profit and losses in the ratio of 3 : 2, so they will be entitled to get X - Rs 30,000 (50,000*3/5) and Y -Rs 20,000 (50,000*2/5).
Now, at present Y is entitled to get Rs 25,000 but in future he will get Rs 20,000...is it justified? Obviously not. Therefore, X, a gaining partner with Rs 5,000 (30,000 - 25,000), will compensate him for his share of sacrifice by adjusting the amount through capital account. So, X's Capital A/c is debited, being decrease in capital and Y's Capital A/c is credited, being increase in capital.