Question

At the time of change in profit sharing ratio among existing partners, 'Reserves' are transferred to Partner's Capital Accounts in the following ratio:

Options

• Sacrificing Ratio

• Gaining Ratio

• Old Profit Sharing Ratio

• New Profit Sharing Ratio

Answer 1

Old Profit Sharing Ratio

Explanation:

Accumulated reserves and profits represent undistributed earnings generated by the partners in the past. Therefore, at the time of reconstitution (change in profit-sharing ratio), these balances must be distributed among all partners in the ratio in which they were originally earned, the Old Profit Sharing Ratio.