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INVESTMENT FLUCTUATION RESERVE Investment Fluctuation Reserve is a reserve created out of the profits to meet the fall in the market value of investments. It is created to adjust the difference between the book value and market value of investment. Excess of IFR over difference between book value and market value is credited to old…
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WHAT IS WORKMEN COMPENSATION RESERVE Workmen Compensation Reserve is a reserve created out of firm’s profits to meet possible liability to pay compensation to employees, if it arises. It means, a claim may or may not arise. It also means that claim may be higher than amount of reserve. The Treatment of Workmen Compensation Reserve…
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TREATMENT OF GOODWILL ON ADMISSION OF PARTNER Goodwill is an intangible asset which enables a firm to earn higher profit than the normal profit earned by the other firms in the industry. Goodwill is created through the sincere and honest efforts made by the partners in the past. The goodwill so generated is known as…
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DIFFERENCE B/W GAINING & SACRIFICING RATIO Before understanding the difference between Gaining & Sacrificing Ratio, one must learn the meaning of both terms which is as follows: SACRIFICING RATIO Sacrificing ratio is the ratio in which old or existing partners forego, i.e., sacrifice their share of profit in favor of the new or incoming partner….
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MEANING The ratio in which the continuing partners acquire the outgoing partner’s share is called the Gaining Ratio. It is the ratio in which the remaining partners will pay the amount of goodwill to the retiring partner. This ratio is calculated by deducting old share in profits from the new share in profits. WHY GAINING…
MEANING Sacrificing Ratio is the ratio in which old or existing partners forego, i.e., sacrifice their share of profit in favor of the new or incoming partner. This share may be given or sacrificed to the new or incoming partner by all the old partners equally or by all or some of the partners in…
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MEMORANDUM REVALUATION ACCOUNT Memorandum Revaluation Account is prepared in case when partners do not want to alter or revise the value of assets and liabilities. It is a Nominal Account. The Memorandum Revaluation Account Format consist of two parts: FIRST PART: In this part, the increase in assets and decrease in liabilities is shown at the…
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REVALUATION ACCOUNT Revaluation account is a nominal account. It is prepared in case when partners want to alter or revise the value of assets and liabilities. It is opened with a purpose to ascertain profit or loss occurring due to increase or decrease in assets and liabilities. An increase in the value of assets and…
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DRAWINGS Drawings means the amount withdrawn by partners for their personal use. It may be in the form of cash or kind. These are shown always on the Debit side of the Partner’s Capital Account. It may be out of capital or against profit. Drawing out of capital means withdrawal of part of capital while…
MEANING Capital Account is a personal account for each proprietor. In case of partnership firm there is a separate Capital Account for each partner. The capital contributed by each partner will be credited to the respective Partner’s Capital Accounts. METHODS TO MAINTAIN PARTNER’S CAPITAL ACCOUNT There are basically two methods to maintain Partner’s Capital Accounts…
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