Anand and Vikas were partners in a firm sharing profits and losses in the ratio of 2 : 1. With effect form 1st April, 2019, they agreed to share the profits equally. On that date, the Balance Sheet of the firm showed Rs. 75,000 as Workmen Compensation Reserve against which there was no liability. Vikas expressed his opinion that it should be credited to the Capital accounts equally. However, Anand was of the opinion that it should be credited to the Capital accounts in the ratio of 2 : 1. Anand was able to convince Vikas. Explain what argument must have been put forward by Anand to which Vikas agreed?

Explanation

Anand would have given the argument that Workmen Compensation Reserch was created out of profits when their profit sharing ratio was 2 : 1. Hence, should be credited in the old profit sharing ratio.