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The total profit is Rs 160,000 and a general reserve of 20% of profit is to be created. How much will be set aside as general reserve before distribution?

Answer and explanation

Correct answer: Rs 32,000

The general reserve is 20% of profit. Calculation:
Rs 160,000 × 20/100 = Rs 32,000. Hence Rs 32,000 will be set aside before distribution. Option C (Rs 1,28,000) is a common distractor — it equals the remaining distributable profit after creating the reserve (160,000 − 32,000), not the reserve itself. Options B and D result from applying incorrect percentages. Exam tip: compute percentage by multiplying profit by (%/100) to avoid shortcuts leading to errors.

Related tags

General ReserveProfit DistributionPartnership AccountsNumericalPercentagesPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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