P, Q and R were partners in a firm sharing profits in the ratio of 1 : 1 : 2. On 31st March, 2018, their balance sheet showed a debit balance of ₹ 9,000 in the profit and loss account and a Workmen Compensation Reserve of ₹ 64,000

P, Q and R were partners in a firm sharing profits in the ratio of 1 : 1 : 2. On 31st March, 2018, their balance sheet showed a debit balance of ₹ 9,000 in the profit and loss account and a Workmen Compensation Reserve of ₹ 64,000. From 1st April, 2018 they decided to share profits in the ratio of 2 : 2 : 1. For this purpose it was agreed that:

(a) Goodwill of the firm was value at ₹ 4,00,000.

(b) A claim on account of workmen compensation of ₹ 30,000 was admitted.

Pass necessary journal entries on reconstitution of the firm.

[Ans. Adjustment for Goodwill: Debit P and Q by ₹ 60,000 each and credit R by ₹ 1,20,000. Excess Workmen Compensation Reserve ₹ 34,000 credited to Partner’s capital accounts in old ratio.]