X and Y are the partners sharing profits in the ratio of 5:4 and they decided on their new ratio of 2:1. At the time of reconstitution of the firm, it has a balance of General Reserve of ₹9,000. How will it be treated?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Credited to X and Y's capital a/c - ₹5,000 and ₹4,000 respectively.
General reserve is distributed between in their old ratio as it is earned before change in ratio.
Old ratio = 5:4
X = 9,000 x 5/9
= 5,000
Y = 9,000 X 4/9
= 4,000