Question

Do you distribute Reserves at the time of Reconstitution of a firm? Why?

Answer 1

Yes we distribute reserves at the time of reconstitution of a firm.

Reserves are the accumulated funds of the company which are kept aside for the general financial strengthening of the company. At the time of admission of a partner the reserve is distributed among the old partners in the old profit sharing ratio because the new partner has no share in it.

During retirement or death of a partner the reserve is distributed among all the partners in their old profit sharing ratio because before the reconstitution of new profit sharing ratio due to retirement or death of a partner all the old accumulated funds of the company should be divided among the partners.