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Rachit, Shekhar and Tarun were partners sharing profits in the ratio of 2: 3: 4. Shekhar retired on 1st April, 2018 on which date the Balance Sheet of the firm showed the following position: (i) Investments (Market Value 2,60,000) 3,00,000; (ii) Investment Fluctuation Reserve 1,30,000 Shekhar was of the opinion that Rs. 1,30,000 should be credited to the Capital accounts of all the partners in their profit-sharing ratio whereas Rachit and Tarun were of the opinion that Rs. 90,000 instead of Rs. 1,30,000 should be credited to the Capital accounts of all the partners to which Shekhar ultimately agreed. Explain what argument must have been put forward by Rachit and Tarun that convinced Shekhar

SOLUTION

Rachit and Tarun must have given the argument that loss of Rs. 40,000 due to decline in the value of investments is related to the period when Shekhar was also a partner. Hence, the loss must be adjusted against Investment Fluctuation Reserve and only the remaining reserve of Rs. 90,000 should be shared by all the partners in their old profit-sharing ratio.







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