Arun and Varun were in partnership sharing profits in the ratio of 2 : 3. With effect from 1st May 2016 they agreed to share profits in the ratio of 1 : 2. For this purpose the goodwill of the firm is to be valued at two year's purchase of the average profits of last three years, which were Rs. 1,50,000, Rs. 1,40,000 and Rs. 2,20,000 respectively. Reserves appear in the books at Rs. 1,10,000. Partners do not want to distribute the reserves. You are required to give effect to the change by passing a single journal entry.

Explanation

Debit Varun and Credit Arun by Rs. 30,000.