how will you deal with reserves and accumulated profits at the time of change in profit sharing ratio among the - Accountancy - Reconstitution- Change in Existing Profit Sharing Ratio

Question

how will you deal with reserves and accumulated profits at the time
of change in profit sharing ratio among the existing partners note
that it is a 3 marks question

Kritika · Accepted Answer

Dear student If reserves and accumulated profits are not to be
shown in the balance sheet of reconstituted firm, then all free
reserves and accumulated profits are debited and existing partner
capital accounts are credited in old profit sharing ratio The entry
will be: Reserves/Accumulated Profits Dr To All Partners Capital
A/C Cr If reserves and accumulated profits are to be appeared in
the balance sheet of reconstituted firm with same figures and
partners decide not to distribute reserves, then treatment will be
instead of above an adjusting entry is passed among the partners in
sacrificing ratio: Gaining partner capital A/C Dr To Sacrificing
partner capital A/C Cr ( Being adjustment entry for crediting
reserves and accumulated profits on reconstitution) This is because
at present, the partners are entitled to share such reserves and
profits in the old profit-sharing ratio where as in future they
will be entitled to share such reserves and profits in the new
profit sharing ratio So the gaining partner compensate the
sacrificing partner Regards

how will you deal with reserves and accumulated profits at the time of change in profit sharing ratio among the existing partners note that it is a 3 marks question