what is machinery replacement fund and why it is not distributed among the partners at the time of reconstitution?Also explain its treatment at the time of dissolution.
What is Machinery Replacement Fund?
Machinery Replacement Fund is a Depreciation Reserve. Such kind of reserves are maintained out of profits of the firm with the motive to replace an old machinery with new one as and when required. The presence of such reserves helps a firm to acquire a new machine without affecting its present cash position.
Why is it not distributed among the partners at the time of reconstitution?
It is not distributed among the partners because it does not form part of firm's accumulated profits, rather it is maintained as an accumulated depreciation fund.
Explain the treatment at the time of Dissolution.
At the time of dissolution, Machinery Replacement Fund is transferred to the credit side of Realisation A/c along with Machinery on the debit side of this account.
Machinery Replacement Fund is a Depreciation Reserve. Such kind of reserves are maintained out of profits of the firm with the motive to replace an old machinery with new one as and when required. The presence of such reserves helps a firm to acquire a new machine without affecting its present cash position.
Why is it not distributed among the partners at the time of reconstitution?
It is not distributed among the partners because it does not form part of firm's accumulated profits, rather it is maintained as an accumulated depreciation fund.
Explain the treatment at the time of Dissolution.
At the time of dissolution, Machinery Replacement Fund is transferred to the credit side of Realisation A/c along with Machinery on the debit side of this account.