Question

Before a partner retires, reserves created out of profits or balances in profit and loss account must be transferred to the capital accounts of all the partners in -

• A. New profit sharing ratio
• B. Old profit sharing ratio
• C. Scarifying ratio
• D. Gain ratio

Answer 1

Answer: (B)

Old profit sharing ratio

Whenever a partner retires from the firm, a new partnership deed is created amongst the existing partners to decide the changes to be done in ratios and various items. And all the reserves which were created earlier have to distributed between partners and transferred to their capital account.

At time of retirement, the reserves in the balance sheet have to distributed in old ratios because the partners have full right to get the share of their reserves. But it is done in old ratio since the reserve was created before retirement.