Transfer of Accumulated Reserve :
Sometimes, Partners of the firm, may set aside a portion or percentage of the profit earned to meet the unexpected or unforeseen losses arise in future in the name of Reserve, General Reserve, Reserve Fund, Contingency Reserve etc. At the time of admission of new partner, if there is any reserve, it should be transferred to the Capital accounts of the old partners in the old profit sharing ratio. The accounting treatment would be as follows:
Reserve Fund A/c Dr …..
To Old Partners’ Capital A/cs …..
Illustration :
Mahendran and Narasimhan are partners of a firm sharing profit and loss in the ratio of 5:4. On 31.3.2005 the firm’s books showed a
Reserve fund of Rs.36,000. They decided to admit Aparajitha on 1st April 2005 for 1/3rd share. Pass entry.
Solution:
Journal Entry
| Date | Particulars | L.F | Debit
Rs. |
Credit Rs. |
|
2005 1-Apr |
Reserve Fund A/c Dr | 36,000 | ||
| To Mahendran’s Capital A/c | 20,000 | |||
| To Narasimhan’s Capital A/c | 16,000 |
| (Reserve fund transferred to old partners’ capital accounts in the old ratio) |