Multiple choice

X, Y and Z are partners sharing profit and losses in the ratio 5 : 3 : 2 decide to share the future profit in the ratio 2 : 3 : 5. What will be treatment for workmen compensation fund appearing in the balance sheet on the date if no information is available for the same?

  1. Distributed to the partners in old profit sharing ratio.

  2. Distributed to the partners in new profit sharing ratio.

  3. Distributed to the partners in capital ratio.

  4. Carried forward to new balance sheet without any adjustment.

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A Correct answer
Explanation

When profit sharing ratio changes and no specific information is given about workmen compensation fund, it's distributed to partners in OLD profit sharing ratio. This is the standard accounting treatment - accumulated reserves and funds are distributed in the ratio in which they were built up.