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A partnership firm has a Contingency Reserve of ₹58,000, against which an expected liability of ₹18,000 exists. On admission, what balance amount will be distributed among the old partners?

Answer and explanation

Correct answer: ₹४०,०००

The expected liability related to the Contingency Reserve is deducted first. Therefore, the balance distributed among the old partners is ₹58,000 − ₹18,000 = ₹40,000. ₹58,000 is the total reserve, whereas ₹18,000 must be retained for the liability. Exam tip: Always deduct the related expected liability before distributing a reserve.

Related tags

Contingency ReserveExpected LiabilityAdmission Of PartnerReconstitutionOld PartnersReservesReconstitution Admission Of A PartnerAccountancy

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