Reserves

Employees Provident Fund is an outside liability. The other items if free are credited to old partners like accumulated profits.

There is no claim so the reserve is free accumulated profit. Second partner share is ₹36000 × 4/9 = ₹16000.

The direct answer is option A: the debit balance should have been debited to the old partners. A Profit and Loss debit balance means accumulated loss. A loss decreases the capital or current account of the partners who bore it. Because this loss relates to the period before admission, the old partners must bear it in their old profit-sharing ratio. Therefore, if it was wrongly credited, the correction is to debit the old partners in that ratio. Option A is correct. Option B is wrong because the new partner did not belong to the firm when the loss arose. Option C is wrong because a loss cannot properly be added to General Reserve. Option D is wrong because there is an accounting error: crediting partners increases their accounts instead of reducing them. Memory cue: debit balance is loss, and loss reduces capital, so debit the responsible old partners.

Reserve is created from old profit so it is distributed in old ratio. New ratio is used for future profits.

A special reserve is first adjusted against the related claim. Only the balance is distributed among old partners.

The investment loss of ₹10,000 is first adjusted against the Investment Fluctuation Reserve of ₹70,000. Thus, the balance available for distribution is ₹60,000. B’s share is 5 out of the total ratio of 10, so B is credited with ₹60,000 × 5/10 = ₹30,000. ₹60,000 is the total balance, not B’s share. Exam tip: Always adjust the related loss or liability against the reserve before distributing its balance among the old partners.

General Reserve is accumulated profit but Employees Provident Fund is outside liability. Therefore only ₹50000 is distributed.

Accumulated profits were earned before admission. The new partner was not a member in that period so he has no right.

After adjusting the debit balance of the Profit and Loss Account against the reserve, the net amount is ₹75,000 − ₹30,000 = ₹45,000. A’s share is 9/(9+6) × ₹45,000 = 9/15 × ₹45,000 = ₹27,000. ₹45,000 is the total net amount, not A’s share. Exam tip: Distribute reserves and accumulated losses among the old partners in their old profit-sharing ratio.

Both items relate to old partners and go in the same old ratio. Therefore finding net effect is useful in exams.

The amount available for distribution is ₹50,000 − ₹20,000 = ₹30,000. A’s share is 4 out of the total 10 parts, so the amount credited to A is ₹30,000 × 4/10 = ₹12,000. ₹30,000 is the total surplus, not A’s individual share. Exam tip: adjust the actual liability against the reserve before distributing the balance among the old partners.

The direct answer is Option A: A General Reserve is created from profit, so the old profit-sharing ratio applies. A General Reserve is not formed from partners’ capital contributions; it is accumulated profit retained in the business. On admission, the reserve belongs to the old partners and must normally be distributed according to the old profit-sharing ratio, because that ratio shows how old profits were shared. Option A is correct. Option B is wrong because the reserve is not created from capital, so capital ratio is not the normal basis. Option C is wrong because the new partner joined later and did not earn the past reserve. Option D is wrong because the reserve is not an outside liability payable to a creditor; it is an internal accumulated profit. If capital and profit ratios differ, using the capital ratio would give an unfair amount. Exam cue: reserve comes from profit, therefore use the old profit ratio.

Both the debit balance of the Profit and Loss Account and Preliminary Expenses are written off among the old partners in their old profit-sharing ratio. Total debit = ₹24,000 + ₹16,000 = ₹40,000. The second partner’s share = ₹40,000 × 5/8 = ₹25,000. ₹40,000 is the total debit for all old partners, not the amount charged to the second partner alone. Exam tip: First aggregate all losses or debit items to be written off, and then apply the relevant partner’s old-ratio fraction.

Distributing old reserves keeps old profits limited to old partners. This makes the new firm position clear.

The actual bad debts of ₹12,000 are adjusted against the reserve, leaving ₹30,000 − ₹12,000 = ₹18,000. This surplus is credited to the old partners’ Capital Accounts in their old profit-sharing ratio of 7:3. Therefore, the first partner’s share is ₹18,000 × 7/10 = ₹12,600. ₹18,000 is the total surplus, not the first partner’s individual share. Exam tip: First deduct actual bad debts from the reserve, then distribute the balance in the old profit-sharing ratio.

Accumulated loss has debit balance so it is credited to close it. Old partners capital reduces so it is debited.

If there is no claim against special reserve it is like free accumulated profit. Therefore it is distributed among old partners.

The General Reserve gives a credit of ₹64,000, whereas the ₹24,000 debit balance of the Advertisement Suspense Account must be adjusted in the old profit-sharing ratio. Thus, the net amount is ₹64,000 − ₹24,000 = ₹40,000. C’s share in the ratio 3:3:2 is 2/8, so C’s net credit is ₹40,000 × 2/8 = ₹10,000. ₹16,000 represents C’s share of the General Reserve alone and ignores the Advertisement Suspense debit. Exam tip: Add reserves and accumulated profits, deduct suspense or accumulated losses, and then distribute the net amount in the old ratio.

Reserve normally has credit balance. To close it the reserve is debited and old partners are credited.

Correct shares are ₹50000 and ₹30000 but equal sharing gives ₹40000 each. The first partner received ₹10000 less.

The Capital Reserve provides a credit of ₹100000, whereas the debit balance of the Profit and Loss Account represents a loss and must be deducted. Thus, the net amount is ₹100000 − ₹40000 = ₹60000. B’s share is 3 out of the total ratio of 10, so B’s credit is ₹60000 × 3/10 = ₹18000. ₹60000 is the total net amount, not B’s individual share. Exam tip: First adjust reserves against accumulated losses, and then distribute the net amount among the old partners in their profit-sharing ratio.

Investment loss is first adjusted against this reserve. The remaining amount is accumulated profit of old partners.

The governing concept is the separation of profits earned before and after admission. Accumulated profits or reserves arise from the firm’s operations before the new partner joined. The new partner did not contribute capital, effort, or bear risk during that earlier period and therefore has no claim over those profits. The accounting entry distributes the reserve only among the old partners, generally by debiting the reserve and crediting their capital or current accounts in the old ratio. The new partner participates in profits earned after admission, according to the new agreement. Option B is false because the new partner’s account does exist, option C is an unsupported generalisation, and option D confuses a book profit with cash. Hence option A is correct.

The General Reserve is credited to the old partners’ Capital Accounts in their old profit-sharing ratio. A’s share of the reserve is ₹80,000 × 13/20 = ₹52,000. Writing off Preliminary Expenses debits A’s Capital Account by ₹20,000 × 13/20 = ₹13,000. Therefore, the net credit to A is ₹52,000 − ₹13,000 = ₹39,000. ₹52,000 represents only A’s share of the reserve and does not consider the debit for Preliminary Expenses. Exam tip: on admission, reserves are credited and fictitious expenses written off are debited to the old partners’ accounts.

The General Reserve of ₹1,35,000 is credited to the old partners, whereas the debit balance of the Profit and Loss Account of ₹45,000 is debited to them. Therefore, the net amount is ₹1,35,000 − ₹45,000 = ₹90,000. C’s share in the old ratio is \(2/9 \times ₹90,000 = ₹20,000\), so C’s capital account receives a net credit of ₹20,000. Option B represents C’s share of the reserve alone and ignores the debit balance. Exam tip: At admission, credit reserves and accumulated profits and debit accumulated losses in the old profit-sharing ratio.