Question

X, Y and Z are partners sharing profits and losses in the ratio 5 : 3 : 2. They decide to share the future profits in the ratio 3 : 2 : 1. Workmen compensation reserve appearing in the balance sheet on the date if no information is available for the same will be:

Options

• Distributed to the partners in old profit sharing ratio.

• Distributed to the partners in new profit sharing ratio.

• Distributed to the partners in capital ratio.

• Carried forward to new balance sheet without any adjustment.

Answer 1

Distributed to the partners in old profit sharing ratio.

Explanation:

• If no claim or liability regarding workmen compensation is given, the Workmen Compensation Reserve is treated as an accumulated profit.
• Therefore, it is distributed among the old partners in their old profit-sharing ratio, because it relates to past profits.