Reserves

General reserve is profit earned before admission. Therefore it is distributed among old partners in old profit sharing ratio.

Credit balance of Profit and Loss Account is accumulated profit. It is shared among old partners in old ratio.

Debit balance of Profit and Loss Account is old loss. It is debited to old partners capital accounts in old ratio.

The general reserve is distributed among the old partners in their old profit-sharing ratio. A’s share is \(\frac{3}{3+2}=\frac{3}{5}\). Therefore, A receives ₹50,000 × 3/5 = ₹30,000. ₹20,000 is B’s share, since B’s ratio is 2/5. Exam tip: On admission of a partner, existing reserves and accumulated profits are generally credited to the old partners in their old ratio.

The reserve fund is distributed among the old partners in their old profit-sharing ratio. The total ratio is 4 + 1 = 5, so Y’s share is 1/5. Therefore, Y receives ₹25,000 × 1/5 = ₹5,000. Exam tip: For reserves, use the old profit-sharing ratio, not the new ratio.

The governing principle is that accumulated profits and reserves existing before admission belong to the partners who earned them during the earlier period. A new partner becomes entitled to future profits from the date of admission, but does not automatically acquire rights in past profits. Therefore, the old General Reserve is distributed among the old partners in their old profit-sharing ratio before the new ratio is applied. Option A correctly identifies the timing of the earning. Whether the reserve is held in cash is irrelevant, because a reserve represents an accounting accumulation of profit. The new partner may contribute capital or goodwill, but that does not create a right to an old reserve.

To close credit balance of general reserve it is debited. Old partners capitals increase so they are credited.

Debit balance is old loss and old partners bear it. Therefore their capital accounts are debited.

B's share is 1/3 of ₹30000 which is ₹10000. Credit balance is profit so it is credited to capital.

The debit balance represents an old loss, which is debited to the partners’ Capital Accounts in their old profit-sharing ratio. A’s share = ₹18,000 × 5/(5+4) = ₹10,000. Therefore, ₹10,000 will be debited to A’s Capital Account. ₹8,000 is B’s share, while ₹18,000 is the total loss. Exam tip: To find a partner’s share, multiply the total loss by that partner’s ratio share divided by the total of the ratio.

Accumulated profits, such as general reserve or undistributed profit, were earned before the new partner joined. The incoming partner did not contribute to that earlier period, so the earlier profits should not be shared using the new ratio. They belong only to the old partners.

The amount is therefore distributed among the old partners in their old profit-sharing ratio. If the reserve is transferred to capital or current accounts, each old partner receives the proportion fixed before admission. Thus option A is correct. The sacrificing ratio is used for goodwill compensation, not for distributing accumulated profits, and the capital ratio is relevant only when a specific agreement makes it so.

Accumulated losses relate to past periods, when only the existing partners were entitled to profits and responsible for losses. Therefore, they are borne by the old partners in their old profit-sharing ratio; the new partner is not charged with these past losses. Exam tip: accumulated profits and accumulated losses are generally adjusted among old partners in the old ratio.

Accumulated profit means profit retained in the business instead of being distributed to partners. A General Reserve is created by transferring part of earned profit to a reserve, so it is a clear example of accumulated profit. It is distributed among the old partners in their old ratio when required at reconstitution. In contrast, a debit balance of the Profit and Loss Account represents an accumulated loss. Advertisement suspense expenditure and preliminary expenses are deferred or unadjusted expenses, not profits. They are normally written off or adjusted against partners’ accounts according to the applicable accounting treatment. Therefore, only option A fits the definition.

Debit balance of Profit and Loss Account is accumulated loss. It is debited to old partners in old ratio.

On the admission of a new partner, the general reserve is distributed among the old partners in their old profit-sharing ratio. Since the reserve is ₹40,000 and A and B share profits equally, it is divided into two equal parts: ₹40,000 ÷ 2 = ₹20,000. Therefore, ₹20,000 is credited to each partner’s capital account. Option B is incorrect because crediting ₹40,000 to each partner would distribute ₹80,000 in total. Exam tip: Distribute existing reserves only among the old partners and use their old profit-sharing ratio.

A general reserve is distributed among the old partners in their old profit-sharing ratio. The total ratio is 2+2+1=5, and C's share is 1. Therefore, C's share = ₹50,000 × 1/5 = ₹10,000. ₹20,000 would be B's share, while ₹50,000 is the entire reserve. Exam tip: use the old profit-sharing ratio when distributing an existing reserve.

General reserve is old profit of old partners. It is transferred to old partners capital accounts.

When there is no claim Workmen Compensation Reserve is like accumulated profit. So the entire balance goes to old partners.

₹30000 will be kept for the claim and balance ₹20000 will be shared by old partners. In exams deduct the claim first.

The governing concept is that a specific reserve must first be used against the liability or claim for which it was created. Here, Workmen Compensation Reserve equals ₹40,000 and the actual claim also equals ₹40,000. Calculation: reserve available ₹40,000 − claim ₹40,000 = surplus nil. Since no balance remains after meeting the claim, nothing can be transferred to or distributed among the old partners. Therefore, option A is correct. The full reserve cannot be distributed because the claim uses it completely. Option C incorrectly adds the reserve and claim, while option D assumes an unsupported partial adjustment.

Claim more than reserve is an additional loss for the firm. It is generally debited to Revaluation Account.

Investment Fluctuation Reserve is created for risk of fall in investment value. In exams connect it with decrease in investments.

Loss on investments = ₹1,00,000 − ₹90,000 = ₹10,000. The Investment Fluctuation Reserve is used only to cover the actual loss; therefore, ₹10,000 will be used. The remaining ₹5,000 will continue in the reserve. Exam tip: First calculate the fall in the investment value, then compare it with the reserve available.

When there is no fall in investments the full reserve is like accumulated profit. So it is shared by old partners.

The governing rule is that Investment Fluctuation Reserve is first applied to the fall in the value of investments. The reserve is ₹30,000 and the required adjustment for the fall is ₹12,000. Therefore, the unused balance is calculated as ₹30,000 − ₹12,000 = ₹18,000. This surplus is an accumulated profit related to the period of the old partners, so it is distributed among them in their old profit-sharing ratio. Option A is therefore correct. Option B gives only the amount used for the loss, option C ignores the adjustment, and option D incorrectly adds the reserve to the fall instead of deducting it.