Book-Keeping and Accountancy · Ch 4 — Reconstitution of Partnership (Retirement of Partner)
Accumulated Profits, Reserves and Losses on Retirement
Accumulated Profits, Reserves and Losses on Retirement
A firm's Balance Sheet, just before a partner retires, may already carry items such as a General Reserve, a Reserve Fund, or a credit balance of the Profit and Loss Account — profits earned and set aside in years the retiring partner was very much a part of. Exactly as with revaluation, these belong to ALL the partners, including the one retiring, and are distributed among them in the OLD profit-sharing ratio before the retiring partner's final dues are worked out — a rule tested consistently in Maharashtra Std XII (HSC) Book-Keeping and Accountancy examinations.
| Item | Journal Entry (distributed to ALL partners, old ratio) |
|---|---|
| General Reserve / Reserve Fund (credit balance) | General Reserve A/c ...Dr; To All Partners' Capital A/cs (including retiring partner) |
| Profit and Loss A/c (credit balance) | Profit and Loss A/c ...Dr; To All Partners' Capital A/cs (including retiring partner) |
| Profit and Loss A/c (debit balance, i.e. accumulated LOSS) | All Partners' Capital A/cs (including retiring partner) ...Dr; To Profit and Loss A/c |
General Reserve and any credit balance of Profit and Loss A/c are distributed to ALL partners (including the retiring partner) in the old ratio, since these were earned …