Reserves

Correct answer: A. ₹16,000

The governing concept is distribution of a reserve accumulated before the admission of a new partner. Such a reserve belongs to the old partners and is transferred to them in their old profit-sharing ratio. The ratio 5:4 totals nine parts. The second partner is entitled to four parts, so his share is ₹36,000 × 4/9 = ₹4,000 × 4 = ₹16,000. Therefore option A is correct. Option B is the first partner’s share because it uses 5/9. Option C would divide the reserve equally and ignore the agreed ratio, while option D represents only the value of one part rather than the second partner’s complete four-part entitlement.

Correct answer: A. ₹21000

The direct answer is option A: A receives a credit of ₹21,000. A reserve fund is an accumulated profit belonging to the partners who earned profits before the new partner’s admission. Therefore it is distributed in the old profit-sharing ratio, which is 7:8. First find total parts: 7 + 8 = 15. A’s share is 7 parts out of 15. Calculation: A’s amount = ₹45,000 × 7/15 = ₹3,000 × 7 = ₹21,000. B would receive ₹45,000 × 8/15 = ₹24,000, and together the two amounts equal ₹45,000. Option A is correct because it matches A’s seven parts. Option B is wrong because ₹24,000 is B’s share, based on eight parts. Option C is wrong because ₹15,000 does not follow the ratio and represents only one-third of the reserve. Option D is wrong because the entire reserve cannot be credited to A; it must be divided between A and B. The credit is made to the old partners’ capital or current accounts, not to the new partner. Memory cue: add ratio parts, divide total reserve by parts, then multiply by the partner’s parts.

Correct answer: A. They share profits equally

When ratio is not given partners are generally assumed to share equally. Then reserve is distributed equally.

Correct answer: A. Capital increases

Accumulated profits or reserves belong to the old partners. Before the new partner is admitted, they are distributed among the old partners in their old profit-sharing ratio, and their capital accounts are credited. Therefore, their capital increases. ‘No effect’ is incorrect because the reserve is adjusted through the partners’ capital accounts. Exam tip: Existing reserves are distributed only among the old partners in their old ratio.

Correct answer: A. Capital decreases

Old partners bear accumulated losses so their capital decreases. Therefore capital accounts are debited.

Correct answer: A. Because reserve belongs to the period before admission

Old reserve was created before the new partner joined. So it should be shared among old partners in old ratio.

Correct answer: A. Old profit-sharing ratio

The credit balance of the Profit and Loss Account represents accumulated profit earned before the new partner’s admission. It belongs only to the old partners and must therefore be distributed in their old profit-sharing ratio, not in the new ratio or sacrificing ratio. Exam tip: Profits, losses and reserves relating to the period before admission are shared by the old partners in the old ratio.

Correct answer: A. Like accumulated loss

Advertisement suspense expenditure is old unwritten expense. It is debited to old partners in old ratio.

Correct answer: A. Credit balance

General reserve is created out of profit so it has a credit balance. At admission it is debited to close it.

Correct answer: A. Profit and Loss Account

To close debit balance Profit and Loss Account is credited. Old partners capital accounts are debited.

Correct answer: A. General Reserve Account

The correct answer is A: General Reserve Account is debited. General Reserve normally has a credit balance because it was created by retaining past profits. To close an account, the opposite side is used; therefore a credit-balance reserve is debited when it is distributed. The corresponding credit is given to the old partners’ Capital Accounts or Current Accounts in their old profit-sharing ratio. Option A is correct. Option B is not the account being closed; old partners’ accounts receive the credit. Option C is wrong because the reserve belongs to the period before admission and is not the new partner’s capital. Option D is wrong because no cash or bank movement is necessary merely to distribute an existing reserve. Memory cue: close a credit balance by debiting it; distribute the reserve by crediting old partners.

Correct answer: A. ₹32,000

On the admission of a new partner, the reserve fund is distributed among the old partners in their old profit-sharing ratio. The total ratio is 4+3+2=9, so the first partner’s share is ₹72,000 × 4/9 = ₹32,000. ₹24,000 represents the second partner’s 3/9 share. Exam tip: For distributing reserves, use the old partners’ old ratio, not the new ratio.

Correct answer: A. So that old results go to old partners

These results belong to the period before the new partner joins. For fair accounting they are adjusted among old partners.

Correct answer: A. It is profit earned before admission and belongs to the old partners

General reserve is created from accumulated profits of earlier years. Before the new partner is admitted, these profits belong only to the old partners, so the reserve is credited to their capital or current accounts in their old profit-sharing ratio. It is neither a new liability nor a cash expense. Exam tip: At admission, accumulated profits and reserves belong to the old partners, while profits earned afterward are shared by all partners.

Correct answer: A. ₹6,000

Advertisement Suspense Account represents a fictitious asset, so it is written off by debiting the partners’ Capital Accounts in the old profit-sharing ratio. A’s share = ₹10,000 × 3/5 = ₹6,000. ₹4,000 is B’s share and therefore cannot be debited to A’s account. Exam tip: Use the old ratio when writing off accumulated losses or fictitious assets at the time of admission.

Correct answer: A. ₹40,000

The general reserve is distributed among the old partners in their old profit-sharing ratio. Total ratio = 2 + 3 + 4 = 9; therefore, the third partner’s share = ₹90,000 × 4/9 = ₹40,000. ₹20,000 is the share of the partner with ratio 2, while ₹30,000 is the share of the partner with ratio 3. Exam tip: On admission, an existing reserve is credited only to the old partners, not to the incoming partner.

Correct answer: A. ₹9,000

A debit balance in the Profit and Loss Account represents a loss, which is distributed among the old partners in their old profit-sharing ratio. In the 2:1 ratio, the second partner’s share is \(\frac{1}{2+1}=\frac{1}{3}\). Therefore, the loss debited to the second partner is ₹27,000 × \(\frac{1}{3}\) = ₹9,000. ₹18,000 is the first partner’s share. Exam tip: Treat a debit balance as a loss and multiply it by the concerned partner’s fraction of the old ratio.

Correct answer: A. Debit to Revaluation Account (loss)

The Investment Fluctuation Reserve can cover the fall in investments only up to ₹10,000. The remaining ₹4,000 is debited to the Revaluation Account as an additional loss. It is not credited to the General Reserve or the new partner’s capital account. Exam tip: subtract the available reserve from the total fall in investment; the balance is the revaluation loss.

Correct answer: A. Entire reserve will be distributed among old partners

There is no fall in investments but an increase. So the full Investment Fluctuation Reserve is distributed among old partners.

Correct answer: A. ₹9,000

After adjusting the claim, the remaining reserve is ₹60,000 − ₹45,000 = ₹15,000. This surplus is distributed among the old partners in their old ratio of 3:2. A’s share is ₹15,000 × 3/5 = ₹9,000. ₹15,000 is the total surplus, not A’s individual share. Exam tip: Any excess reserve after meeting the claim is distributed in the old partners’ old ratio.

Correct answer: A. Profit and Loss Account

The governing rule for closing a credit balance is based on the normal balance of the account. A credit balance in the Profit and Loss Account represents accumulated profit. To transfer or close that balance, the Profit and Loss Account itself is debited, while the old partners’ Capital or Current Accounts are credited in their old profit-sharing ratio. Thus, option A is correct. The old partners’ accounts receive the benefit and are credited, not debited. The new partner has no claim over profit earned before admission, so the new partner’s Capital Account is not used. Cash is also unaffected because this is a book adjustment, not a cash transaction.

Correct answer: A. General reserve accumulated profit

An accumulated profit is a profit earned in earlier periods and retained in the business instead of being distributed immediately. General Reserve is created from such undistributed profits, so it is correctly described as an accumulated profit item. When a partnership is reconstituted, this reserve is normally transferred to the old partners’ capital or current accounts in their old profit-sharing ratio.

The other choices are incorrect because preliminary expenses, a debit balance of Profit and Loss Account, and advertisement suspense expenditure represent losses or expenses, not accumulated profits. A debit balance indicates an amount to be written off or borne by partners. Therefore, the correct pair is “General reserve—accumulated profit,” which is option A. The classification depends on the nature of the balance, not merely on the word used in its name.

Correct answer: A. Old profits and losses belong to old partners

Profits and losses before admission belong to old partners. Therefore they are adjusted in old ratio.

Correct answer: A. Distributed among old partners in old ratio

Capital reserve is also an accumulated profit created before admission. Therefore it is distributed among old partners in old ratio.

Correct answer: A. Accumulated undistributed profits of the old partners

General reserve is created from profits of earlier years that have not been distributed to the partners. On the admission of a new partner, it belongs to the old partners and is generally transferred to their capital accounts in the old profit-sharing ratio. Therefore, option A is correct; it is neither the new partner’s capital nor a cash loss of the firm. Exam tip: Existing reserves at admission are distributed among the old partners in the old ratio.