Distribution of accumulated profits, reserves and losses

Distribution of accumulated profits, reserves and losses

Profits and losses of previous years which are not distributed to the partners are called accumulated profits and losses. Any reserve and accumulated profits and losses belong to the old partners and hence these should be distributed to the old partners in the old profit sharing ratio. Reserves include general reserve, reserve fund, workmen compensation fund and investment fluctuation fund. Incase of workmen compensation fund, the excess amount after providing for anticipated claim is the accumulated profit to be transferred.

Following are the journal entries to be passed:

(a) For transferring accumulated profit and reserves

(b) For transferring accumulated loss

Illustration 1

Mala and Vimala were partners sharing profits and losses in the ratio of 3:2. On 31.3.2017, Varshini was admitted as a partner. On the date of admission, the book of the firm showed a reserve fund of ₹ 50,000. Pass the journal entry to distribute the reserve fund.

Solution

Illustration 2

Kavitha and Radha are partners of a firm sharing profits and losses in the ratio of 4:3. They admit Deepa on 1.1.2019. On that date, their balance sheet showed debit balance of profit and loss account being accumulated loss of ₹ 70,000 on the asset side of the balance sheet. Give the journal entry to transfer the accumulated loss on admission.

Solution

Illustration 3

Rathna Kumar and Arockia Das are partners in a firm sharing profits and losses in the ratio of 3:2. Their balance sheet as on 31st March, 2017 is as follows:

Solution

David was admitted into the partnership on 1.4.2017. Pass journal entry to distribute the accumulated profits and reserve on admission.