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 ________.

new profit sharing ratio

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old profit sharing ratio

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sacrificing ratio

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gain ratio

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Solution

The correct option is B old profit sharing ratio
b' Any reserves or undistributed profits appearing on the liability side of the Balance Sheet, at the time of retirement, are past profits, which are created to financial position of the firm the retiring partner has a right over such profits.
Therefore, it is necessary to divide the accumulated reserve or undistributed profit among all the partners in their old profit or loss sharing ratio. When the distribution is over, they do not appear in the Balance Sheet.
'

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Similar questions

Q. 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, B and C are partners sharing profits in the ratio of 2 : 2 : 1. A retires and after all adjustments relating to revaluation, goodwill and accumulated profits the capital account of B showed a credit balance of Rs 1,40,000 and that of C Rs 1,00,000. It was decided to adjust the capitals of B and C in their profit sharing ratio. Calculate the new capitals of the partners and record necessary entry for bringing in or withdrawing cash.

Why is Reserves and Surplus credited to the old Partners' Capital Accounts in their old profit sharing ratio at the time of admission of a partner?

Q. Consider the following statements :
1. At the time of admission of new partner undistributed profit or losses are distributed to all partners in new ratio.
2. Profit or loss on revaluation of assets and liabilities is transferred to old partner's capital account in old profit sharing ratio.
3. Goods brought in by incoming partner in cash for joining in a partnership firm is taken away by the old partner's in their new profit-sharing ratio.
Which of the above statement/s is/are true ?

X

and

Y

are partners in a firm sharing profits and losses in the ratio of

3 : 2

, With effect from

1 s t

April,

2018

, they decided to share future profits equally. On the date of change in the profit-sharing ratio, the Profit and Loss Account showed a credit balance of Rs.

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. Record the Journal entry for the distribution of the balance in the profit and Loss Account immediately before the change in the profit-sharing ratio.

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