Accountancy · Ch 6 — Retirement and Death of a Partner
Adjustment of Accumulated Profits, Reserves and Losses
Adjustment of Accumulated Profits, Reserves and Losses
A firm's Balance Sheet often carries undistributed past profits — a General Reserve, a credit balance of the Profit and Loss Account, or a Workmen Compensation Reserve in excess of any actual claim against it. These represent profits earned in years when the outgoing partner was also a member of the firm, so on his or her retirement or death, they are distributed among all the partners (including the outgoing one) in the old profit-sharing ratio — exactly the same principle as for revaluation profit.
General Reserve / Accumulated Profit A/c Dr. (with the balance)
To All Partners' Capital A/cs (in old ratio)
Similarly, if the Balance Sheet shows a debit balance of Profit and Loss Account (an accumulated loss) or an unwritten-off Deferred Revenue Expenditure (such as an advertisement suspense balance), these are treated as losses and written off among all the partners, again in the old ratio:
All Partners' Capital A/cs Dr. (in old ratio)
To Profit and Loss A/c (Dr. balance) / Deferred Revenue Expenditure A/c …
An amount set aside out of past profits, not earmarked for any specific purpose, carried in the Balance Sheet until dis …
A debit balance of the Profit and Loss Account (or unwritten-off deferred revenue expenditure) representing losses of earlier years not yet adjusted agai …