Question

Chandan, Ravi and Mahesh were partners in a firm sharing profits and losses in the ratio of 5 : 4 : 1. From 1^st April, 2025, they decided to share the future profits in the ratio of 3 : 2 : 1. On that date, there existed a general reserve of ₹ 7,00,000 in the books of the firm, which they decided to distribute among themselves.

In which ratio will the general reserve be distributed among the partners?

Options

• New profit-sharing ratio

• Old profit-sharing ratio

• Sacrificing/Gaining ratio

• Equally

Answer 1

Old profit-sharing ratio

Explanation:

General Reserve represents the accumulated profits of previous years. Since these profits were earned in the past, they belong to the partners in their old profit-sharing ratio (5 : 4 : 1). When partners decide to change their profit-sharing ratio, any existing reserves or balances in the Profit & Loss account must be distributed in the old ratio before the new ratio takes effect.