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Profit and loss appropriation account - class-XII
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A, B, and C are partners sharing profits in the ratio of $ 5:3:2.$ They decide to share the future profits in the ratio of 2:3:5 with effect from $1st$ April, 2018. What will be accounting treatment of Workmen Compensation Reserve appearing in the Balance Sheet on that date when no information is available for the same?
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A
Distributed among the partners in their old profit-sharing ratio.
💡 Explanation:
One of the popular form of business now a days is partnership firms. Its defined as the"relation between two or more person who have agreed to share the profits of a business carried on by them." Here the question is about the treatment of workmen compensation reserve appearing in the balance sheet.
As there is a change in the constitution of partnership, the workmen compensation reserve that is appearing in the balance sheet should be distributed among the partners in their old profit sharing ratio. As no more information is available regarding the reserve and there is a change in the constitution of the firm by way of change in profit sharing ratio, so the reserve which relates to balance sheet before change in profit ratio should be distributed in the old ratio among the partners.
Whenever the question is silent on the treatment of workmen compensation reserve and no further information is available it is advisable to distribute it in old profit sharing ratio among the partners. So, the whole amount appearing in the balance sheet should be distributed