Question

What treatment is made of accumulated profits on the retirement of a partner?

Options

• Credited to all partner’s capital accounts in old ratio.

• Debited to all partner’s capital accounts in old ratio.

• Credited to remaining partner’s capital accounts in new ratio.

• Credited to remaining partner’s capital accounts in gaining ratio.

Answer 1

Credited to all partner’s capital accounts in old ratio.

Explanation:

When a partner retires, accumulated profits or reserves (like General Reserve, Profit & Loss Account credit balance, etc.) represent undistributed earnings of the firm earned while all partners were part of the firm. These are credited to all partners’ capital or current accounts in their old profit-sharing ratio, including the retiring partner.