Deepak, Farukh and Lilly were partners in a firm sharing profits in the ratio of 3:2:1. On 28.2.2015 Farukh retired from the firm. On Farukh's retirement, there was a balance of `12,000 in Workmen's Compensation Reserve which was no more required. On Farukh's retirement this amount will be :
(a) Debited to the Capital accounts of all the partners in their profit sharing ratio.
(b) Credited to the Capital accounts of all the partners in their profit sharing ratio.
(c) Credited to the Capital accounts of Deepak and Lilly in their profit sharing ratio.
(d) Credited to the Capital account of Farukh.
Solution
Credited to the Capital accounts of all the partners in their profit sharing ratio.
On Farukh's retirement, the amount of Workmen's Compensation Reserve will be credited to the
Capital Accounts of all the partners in their profit sharing ratio. Reason being the reserve build-up
using the surplus earned by the firm in the past also includes the efforts made by all the partners.
