Why is Employees’ Provident Fund not distributed among the old partners when a new partner is admitted?

Correct answer: It is an outside liability payable to employees

Employees’ Provident Fund consists of amounts collected for employees and payable to them; therefore, it is an outside liability of the firm. It does not belong to the partners and cannot be distributed among the old partners as profit or reserve. General reserve and accumulated profits, unlike provident fund, are items associated with the partners’ profit-sharing rights. Exam tip: Amounts payable to employees or other outsiders are liabilities, not distributable profits.