Decrease Partnership Capital
This chapter covers the following topics: -
.Refund a part of the capital cash .1
.Delete partners debit current account .2
.Removing forward losses .3
.Removing good will .4
.Assets and Liabilities Revaluation .5
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-:There are many methods to decrease partnership capital as a follows
.Refund a part of the capital cash .1
.Delete partners debit current account .2
.Removing forward losses .3
.Removing good will .4
.Assets and Liabilities Revaluation .5
……………………………………………………………………………………
:Refund a part of the capital cash .1
:Example: - A and B partnership balance sheet on 31/12/2016 as follows
Fixed Assets 50,000 A. Capital 60,000
Stocks 66,000 B. Capital 80,000 140,000
Accounts Receivable 69,000 Creditors 60,000
Bank 53,000 Bills Payable 38,000
238,000 238,000
At 1/1/2017 they agreed to reduce the capital to be I.D 100,000 divided equally
between them, they also agreed to refunding the decrease amount by bank account.
.Required: - 1. Adjustment Entries
.New Balance Sheet .2
2
- :Solution
Data Total A B
Old Capital 140,000 60,000 80,000
New Capital (Equally) 100,000 50,000 50,000 -
Decrease 40,000 10,000 30,000
Credited Currents a/c 40,000 10,000 30,000 )1
Currents a/c 40,000 10,000 30,000
Bank a/c (40,000) (10,000) (30,000) )2
Zero Zero Zero
:Adjustment Entries .1
From: A. Capital a/c 10,000
B. Capital a/c 30,000
To: A. Current a/c 10,000
B. Current a/c 30,000
.……………………………………………………
From: A. Current a/c 10,000
B. Current a/c 30,000
To: Bank a/c 40,000
..………………………………………………………
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:New Balance Sheet .2
Balance Sheet
Fixed Assets 50,000 A. Capital 50,000
Stocks 66,000 B. Capital 50,000 100,000
Accounts Receivabl 69,000 Creditors 60,000
Bank 13,000 Bills Payable 38,000
198,000 198,000
…………………………………………………………………………………………..
…………………………………………………………………………………………..
.Delete partner's debit current a/c .2
Example: - X and Y partners in a partnership at 31/12/2016 the balance sheet was as
follows:
Fixed Assets 30,000 x. Capital 60,000
Stocks 56,000 y. Capital 80,000 140,000
Accounts Receivable 59,000 Creditors 60,000
X. Current a/c 10,000 Bills Payable 38,000
Y. Current a/c 30,000
Bank 53000
238,000 238,000
At 1/1/2017 they decided to reduce the capital by I.D 40,000, the rest will be divided
equally between them and use the current account for decrease.
.Required: - 1. Adjustment Entries
.New Balance Sheet .2
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- :Solution
Data Total X Y
Old Capital 140,000 60,000 80,000
New Capital (Equally) 100,000 50,000 50,000
Decrease 40,000 10,000 30,000
Current a/c (40,000) (10,000) (30,000)
Zero Zero Zero
- :Adjustment Entries .1
From: X. Capital a/c 10,000
Y. Capital a/c 30,000
To: X. Current a/c 10,000
Y. Current a/c 30,000
………………………………………………………
- :New Balance Sheet .2
Balance Sheet
Fixed Assets 30,000 X. Capital 50,000
Stocks 56,000 Y. Capital 50,000 100,000
Accounts Receivable 59,000 Creditors 60,000
Bank 53,000 Bills Payable 38,000
198,000 198,000
..……………………………………………………………………………………
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- :Removing forward losses .3
:Example: - A and B balance sheet at 31/12/2016 was as follows
Fixed Assets 40,000 A. Capital 70,000
Stocks 60,000 B. Capital 60,000 130,000
Accounts Receivable 30,000 Creditors 30,000
PLD a/c (Loss) 30,000
160,000 160,000
At 1/1/2017 they agreed to decrease the capital to be I.D 100,000 and they decided to
use the forward losses balance, and they divided profit & loss between them at ratio 2:
1. The new capital divided between them equally.
.Required: - 1. Adjustment Entries
.New Balance Sheet .2
- :Solution
Data Total A B
Old Capital 130,000 70,000 60,000
New Capital (Equally) 100,000 50,000 50,000 -
Decrease 30,000 20,000 10,000
PLD a/c (Loss) (30,000) (20,000) (10,000)
Zero Zero Zero
:Adjustment Entries .1
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From: A. Capital 20,000
B. Capital 10,000
To: PLD a/c 30,000
..…………………………………………………………………
:New Balance Sheet .2
Balance Sheet
Fixed Assets 40,000 A. Capital 50,000
Stocks 60.000 B. Capital 50,000 100,000
Accounts Receivable 30,000 Creditors 30,000
130,000 130,000
…………………………………………………………………………………………
…………………………………………………………………………………………
:Removing good will .4
Example: - K, L, and M Partners in a partnership and they share profit & loss at ratio
1: 2: 2 at 2/1/2016. They agreed to decrease the capital by I.D 100,000 and the new
capital will be divided between them at ratio 1: 1: 1 and they will use the good will
balance, PLD balance, partner's debit current a/c and the rest will be drawn out of
:partnership bank account. And the Balance Sheet was
Fixed Assets 120,000 K. Capital 120,000
Stocks 200,000 L. Capital 140,000
Accounts Receivable 50,000 M. Capital 140,000 400,000
Good Will 30,000 Creditors 40,000
L. Current a/c 10,000 Bills Payable 60,000
M. Current a/c 5,000
PLD a/c 25,000
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Bank 60,000
500,000 500,000
.Required: - 1. Adjustment Entries
.Capital Account .2
.New Balance Sheet .3
- :Solution
Data Total K L M
Old Capital 400,000 120,000 140,000 140,000
New Capital (1: 1: 1) 300,000 100,000 100,000 100,000 -
Decrease 100,000 20,000 40,000 40,000
Good Will (1: 2: 2) (30,000) (6,000) (12,000) (12,000)
Balance 70,000 14,000 28,000 28,000
PLD a/c (1: 2: 2) (25,000) (5,000) (10,000) (10,000)
Balance 45,000 9,000 18,000 18,000
Current a/c 15,000 / 10,000 5,000
Rest 30,000 9,000 8,000 13,000
Drawout Bank a/c (30,000) (9,000) (8,000) (13,000)
Zero Zero Zero Zero
- :Journal Entries .1
From: K. Capital a/c 6,000
L. Capital a/c 12,000
M. Capital a/c 12,000
To: Good Will a/c 30,000
.……………………………………………………………
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From: K. Capital a/c 5,000
L. Capital a/c 10,000
M. Capital a/c 10,000
To: PLD a/c 25,000
..………………………………………………………………
From: L. Capital a/c 10,000
M. Capital a/c 5,000
To: L. Current a/c 10,000
M. Current a/c 5,000
..……………………………………………………………………
From: K. Capital a/c 9,000
L. Capital a/c 8,000
M. Capital a/c 13,000
To: Bank a/c 30,000
.................………………………………………………………
Capital Account .2
Data K L M Data K L M
To: Good Will 6,000 12,000 12,000 Old Balance 120,000 140,000 140,000
To: PLD a/c 5,000 10,000 10,000 Capital
To: Current a/c / 10,000 5,000
To: Bank a/c 9,000 8,000 13,000
New Balance 100,000 100,000 100,000
)c/b Balance Sheet(
140,000 140,000 120,000 140,000 140,000 120,000
.…………………………………………………………………………………………
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- :New Balance Sheet .3
Balance Sheet
Fixed Assets 120,000 K. Capital 100,000
Stocks 200,000 L.Capital 100,000
Accounts Receivable 50,000 M. Capital 100,000
300,000
Bank 30,000 Creditors 40,000
Bills Payable 60,000
400,000 400,000
.……………………………………………………………………………………
.……………………………………………………………………………………
:Assets and Liabilities Revaluation .5
When the partners agree to use this way to decrease the capital, they should open
revaluation account which was debited by any decrease in assets & liabilities and
credited by any increase.
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Example: - H and J partners in a partnership they share the profit and losses at ratio 2:
1. At 31/12/2016 the balance sheet was as follows:
Fixed Assets 15,000 H. Capital 110,000
Stocks 60,000 J. Capital 90,000 200,000
Bills Receivable 20,000 Creditors 46,000
Accounts Receivable 72,000 Bad Debits Provision 2,000
Good Will 10,000
H. Current a/c 12,000
J. Current a/c 18,000
Bank 41,000
248,000 248,000
At 1/1/2017 they agreed to decrease the capital to be I.D 110,000 divided between
them equally, and they decided to use the following for decrease: -
.Reduce the Fixed Assets By 10% and good will by I.D 3,000 .1
.Revaluation stocks to be I.D 63,000 and bills receivable I.D 18,500 .2
.There is a bad debt to be takeoff is I.D 2,000 .3
.Increase bad debt provision to be I.D 6,000 .4
.Required: - 1. Adjustment Entries
.Revaluation Account .2
.Capital Account .3
.New Balance Sheet .4
Note: - The partners will use the result of revaluation a/c and current partners debt
.account and the rest will be drawn out cash from the partnership bank account
- :Solution
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- :Adjustment Entries .1
From: Revaluation a/c 6,000
To: Fixed Asset a/c 1,500 10% * 15,000
Good Will a/c 3,000
Bills Receivable a/c 1,500
..…………………………………………………
From: Stocks a/c 3,000
To: Revaluation a/c 3,000
……………………………………………………
From: Bad Debt Provision a/c 2,000
To: Accounts Receivable a/c 2,000
.……………………………………………………
From: Revaluation a/c 6,000
To: Bad Debit Provision a/c 6,000
..………………………………………………………
From: H. Capital a/c 6,000
J. Capital a/c 3,000
To: Revaluation a/c 9,000
…………………………………………………………
.Note: - If the balance of Revaluation Account is debited, it will reduce the capital
.If the balance of Revaluation Account is Credited, it will increase the capital -
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Revaluation Account
To: F. A., G. W., and B. R. 6,000 by Stocks 3,000
To: Bad Debit Provision 6,000
Balance 9,000
12,000 12,000
Balance 9,000
From: H. Capital a/c 12,000
J. Capital a/c 18,000
To: H. Current a/c 12,000
J. Current a/c 18,000
Data Total H J
Old Capital 200,000 110,000 90,000
-New Capital (Equally) 110,000 55,000 55,000
Decrease 90,000 55,000 35,000
Revaluation a/c (2: 1) 9,000 6,000 3,000 -
Balance 81,000 49,000 32,000
Current a/c 30,000 12,000 18,000 -
Rest 51,000 37,000 14,000
Draw out bank a/c (51,000) (37,000) (14,000)
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Zero Zero Zero
From: H. Capital a/c 37,000
J. Capital a/c 14,000
To: Bank a/c 51,000
……………………………………………………………………
Bank A/C
Old Balance 41,000 by Capital 51,000
New Balance 10,000
51,000 51,000
Balance 10,000
.……………………………………………………………………………………
Revaluation A/C
To: Fixed Assets 1,500 By Stocks 3,000
To: Good Will 3,000 By Capital 9,000
To: Bills Receivable 1,500 H. 6,000
To: Bad debit Provision 6,000 J. 3,000
12,000 12,000
Capital Account .2
Data H J Data H J
To: Revaluation a/c 6,000 3,000 Old Balance 110,000 90,000
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To: Current a/c 12,000 18,000
To: Bank a/c 37,000 14,000
New Balance 55,000 55,000
)c/f Balance Sheet(
90,000 110,000 90,000 110,000
:New Balance Sheet .3
Balance Sheet
F. A. (15,000 – 1,500) 13,500 H. Capital 55,000
G. W. (10,000 – 3,000) 7,000 J. Capital 55,000 110,000
Stocks (60,000 + 3,000) 63,000 Creditors 46,000
Accounts Receivable (72,000 1 2,000) 70,000 Bad Debit Provision
6,000
Bills Receivable 18,500 Bank 10,000
172,000 172,000
…………………………………………………………………………………………
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