Manpreet and Justin were partners sharing profits and losses in the ratio 3: 2 they decided that on 1st April 2018 they will share profits and losses equally. On that date the balance sheet of the firm had balance of rupees 1,00,000 in general reserve. jaspreet was of the opinion that it should be credited to the capital accounts equally. Manpreet was of the opinion that it should be credited to their capital accounts in their old profit sharing ratio. explain what argument Manpreet must have put forward
Dear Student,
Here is your answer,
As it is generally known that here Manpreet is correct to credit General Reserve in the old profit sharing ratio.
He should put forward the following argument:
As partners were sharing their profits in the old ratio when the reserves were created. And they will have their old share in that reserves because reserves are kept aside from profits only. And if those reserves would not be created then that profit would have been distributed in the old ratio.
Therefore General Reserves should have been distributed in the old ratio so that no partner is placed at advantage or disadvantage.
Regards.
Here is your answer,
As it is generally known that here Manpreet is correct to credit General Reserve in the old profit sharing ratio.
He should put forward the following argument:
As partners were sharing their profits in the old ratio when the reserves were created. And they will have their old share in that reserves because reserves are kept aside from profits only. And if those reserves would not be created then that profit would have been distributed in the old ratio.
Therefore General Reserves should have been distributed in the old ratio so that no partner is placed at advantage or disadvantage.
Regards.