If at the time of retirement of a partner, the Balance Sheet of a firm shows accumulated profits in the form of general reserve and/or accumulated losses in the form of profit and loss account debit balance, retiring partner is:
(A) Entitled to His/Her share in the accumulated profits.
(B) Not Entitled to His/Her share in the accumulated profits.
(C) Not liable to share the accumulated losses.
(D) Liable to share the accumulated losses.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A) and (D) only
Accumulated profits and losses belong to all the partners who were in the firm when they arose, so a retiring partner shares in both, in the old profit sharing ratio.
(A) Entitled to His/Her share in the accumulated profits. Correct. The general reserve was built while the partner was in the firm; the partner’s share of it is credited to the capital account and paid out with the rest of the dues.
(B) Not Entitled to His/Her share in the accumulated profits. Incorrect. Leaving the firm does not take away a share in profits already earned; the reserve is transferred to all the partners’ capital accounts.
(C) Not liable to share the accumulated losses. Incorrect. A partner who shares the profits also bears the losses; a debit balance of the Profit and Loss Account is charged to every partner, the retiring one included.
(D) Liable to share the accumulated losses. Correct. The debit balance is written off to all the partners’ capital accounts in the old ratio before the retiring partner’s dues are settled.
NCERT (2026-27 edition): |