— Kishore V, SME and ACW at Edumarz
When a new partner is added to the partnership business, all previous accrued earnings or losses, as well as reserves, are dispersed among all existing partners according to their previous profit sharing ratio.
This is because these earnings and losses are related to the previous partners’ hard work and labour, and as a result, the old partners are responsible for any prior losses or profits. Because the new partner did not contribute anything to the business’s prior performance, he or she is not entitled to a portion of the earnings.
Accumulated Profits and Losses Accounting Treatment
(i) For Distributing Accumulated Profits and Reserves
Particulars | L.F | Debit | Credit |
Profit and loss A/c Dr General reserve A/c Dr Reserve Fund A/c Dr Workmen’s Compensation Fund A/c Dr Contingency Reserve A/c Dr To Old Partner’s Capital A/c (Undistributed profit and reserves are distributed among old partners in their old profit sharing ratio) | XXX XXX XXX XXX XXX | XXX |
(ii) To Assist in the Distribution of Accumulated Losses.
Particulars | L.F | Debit | Credit |
Old Partner’s Capital A/c Dr To Profit and loss A/c To Deferred Expenses A/c To Preliminary Expenses A/c (Undistributed losses are distributed among old partners in their old profit sharing ratio) | XXX | XXX XXX XXX |