Transfer of Undistributed Profit or Loss

Transfer of Undistributed Profit or Loss :

Some times, the balance sheet of the partnership firm may show undistributed profits in the form of profit and loss account in the liabilities side. The undistributed loss in the business is generally shown at the assets side of the old Balance Sheet. The new partner is not entitled to have any share in the undistributed profit or loss. Therefore the undistributed profit or loss should be transferred to the old partners capital accounts in the old profit sharing ratio.

The accounting treatment would be as follows:

a. For transfer of undistributed profit :

Profit and Loss A/c                                                                                     Dr              …..
To Old Partners’ Capital A/cs                                                                                                               …..

2. For transfer of undistributed loss:

Old Partners’ Capital A/cs                                                                     Dr                ….
To Profit and Loss A/c                                                                                                      …..

Illustration : 

Sumathi and Sundari are partners of a firm sharing profit and loss in the ratio of 4:3. Their Balance Sheet shows Rs.14,000 as Profit and Loss A/c in the liabilities side. Pass entry.

Solution:

Journal Entry

Date	Particulars		Debit Rs.	Credit Rs.
	Profit and Loss A/c                                                                                                                                  Dr		14,000
	To Sumathi’s Capital A/c			8,000
	To Sundari’s Capital A/c			6,000
	(Undistributed profit transferred to Old Partners’ Capital Accounts in the old ratio)

 

Illustration :

Mahalakshmi and Dhanalakshmi are partners sharing profit and loss in the ratio of 3:2. They admit Deepalakshmi on 1st January 2005. On that date, their Balance Sheet showed an amount of Rs.25,000 as Profit and Loss A/c in the Asset side. Pass entry.

Solution :

Date	Particulars	L.F	Debit Rs.	Creditt Rs.
2005  Jan1	Mahalakshmi’s Capital A/c                                       Dr		15000
	Dhanalakshmi’s Capital A/c                                     Dr		10,000
	To Profit and Loss A/c			25,000
	(Undistributed loss transferred to old partners Capital accounts in the old ratio)