How will you deal with the accumulated profits and losses and reserves on the admission of a new partner?
How will you deal with the accumulated profits and losses and reserves on the admission of a new partner?
When a new partner is admitted in a Partnership firm, then all past accumulated profits or losses and reserves are distributed among all the old partners in their old profit sharing ratio.
This is because these profits and losses are attributable to the hard work and labours of the old partners and consequently, the old partners are liable to bear past losses or profits, if any. The new partner is not entitled to a share in these profits as he/she did not contribute anything for the past performance of the business.
Accounting Treatment of Accumulated Profits and Losses
(i) For Distributing Accumulated Profits and Reserves
DateParticularsLFAmt.(Dr)Amt.(Cr)Profit and loss A/c DrGeneral reserve A/c DrReserve Fund A/c DrWorkmen's Compensation Fund A/c DrContingency Reserve A/c Dr To Old Partner's Capital A/c(Undistributed profit and reserves aredistributed among old partners in their oldprofit sharing ratio)
(ii) For Distributing Accumulated Losses.
DateParticularsLFAmt.(Dr)Amt.(Cr)Old Partner's Capital A/c Dr To Profit and loss A/c To Deferred Expenses A/c To Preliminary Expenses A/c(Undistributed losses are distributedamong old partners in their old profit sharingratio)
When a new partner is admitted in a Partnership firm, then all past accumulated profits or losses and reserves are distributed among all the old partners in their old profit sharing ratio.
This is because these profits and losses are attributable to the hard work and labours of the old partners and consequently, the old partners are liable to bear past losses or profits, if any. The new partner is not entitled to a share in these profits as he/she did not contribute anything for the past performance of the business.
Accounting Treatment of Accumulated Profits and Losses
(i) For Distributing Accumulated Profits and Reserves
DateParticularsLFAmt.(Dr)Amt.(Cr)Profit and loss A/c DrGeneral reserve A/c DrReserve Fund A/c DrWorkmen's Compensation Fund A/c DrContingency Reserve A/c Dr To Old Partner's Capital A/c(Undistributed profit and reserves aredistributed among old partners in their oldprofit sharing ratio)
(ii) For Distributing Accumulated Losses.
DateParticularsLFAmt.(Dr)Amt.(Cr)Old Partner's Capital A/c Dr To Profit and loss A/c To Deferred Expenses A/c To Preliminary Expenses A/c(Undistributed losses are distributedamong old partners in their old profit sharingratio)
