Reserves

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 ₹24,000 is first adjusted against the Investment Fluctuation Reserve of ₹96,000, leaving ₹72,000. This balance is credited to the partners in the old profit-sharing ratio of 3:4:5. C’s share is 5/12, so the amount credited is ₹72,000 × 5/12 = ₹30,000. ₹24,000 represents only the loss, whereas ₹72,000 is the distributable balance. Exam tip: Deduct the loss from the reserve and distribute the remaining amount in the old ratio.

General Reserve is accumulated profit but Employees Provident Fund is outside liability. Therefore only ₹68000 is distributed.

The reserve of ₹90,000 is a gain, while the debit balance of ₹36,000 in the Profit and Loss Account represents a loss. Thus, the net amount is ₹90,000 − ₹36,000 = ₹54,000. B’s share in the old ratio is 7/18, so his amount is ₹54,000 × 7/18 = ₹21,000. ₹54,000 is the total net amount, not B’s individual share; hence option C is incorrect. Exam tip: First offset the debit balance against the reserve, and then apply the concerned partner’s old profit-sharing fraction.

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

₹25,000 of the reserve will be used to meet the actual liability. The balance, ₹70,000 − ₹25,000 = ₹45,000, is distributed among the partners in their old ratio of 5:3:2. Partner B’s share is 3/10, so the amount credited is ₹45,000 × 3/10 = ₹13,500. Exam tip: Adjust the reserve for the actual liability first, and distribute only the surplus in the old profit-sharing ratio.

The debit balance of the Profit and Loss Account represents an accumulated loss, while Preliminary Expenses are a fictitious asset. Both are written off among the old partners in their old profit-sharing ratio when a new partner is admitted. The total amount is ₹30,000 + ₹18,000 = ₹48,000. The second partner’s share is 7/9, so the amount debited is ₹48,000 × 7/9 = ₹37,333.33. Therefore, option A is correct. Option B is the total amount to be written off, whereas option C is the first partner’s share. Exam tip: Distribute accumulated losses and fictitious assets among old partners in their old ratio.

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

The actual bad debts of ₹15,000 are adjusted against the Bad Debts Reserve. Thus, the excess reserve available for distribution is ₹36,000 − ₹15,000 = ₹21,000. It is distributed between the old partners in the ratio 4:5. The second partner’s share is ₹21,000 × 5/9 = ₹11,666.67, or ₹11,667 when rounded to the nearest rupee. ₹21,000 is the total remaining reserve, not the second partner’s individual share. Exam tip: Adjust actual bad debts against the reserve before distributing any excess among the old partners.

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 of ₹96,000 is credited to all partners’ Capital Accounts in the old profit-sharing ratio. The Advertisement Suspense Account represents a deferred loss, so ₹36,000 is debited in the same ratio. Thus, the total net adjustment is ₹96,000 − ₹36,000 = ₹60,000. C’s share is \(3/(4+5+3)=3/12\), so the net credit to C’s account is \(₹60,000 \times 3/12 = ₹15,000\). ₹24,000 is only C’s share of the General Reserve and does not account for the Advertisement Suspense adjustment. Exam tip: credit reserves, but debit accumulated or deferred losses in the old ratio.

Correct shares are ₹56000 and ₹40000 but equal sharing gives ₹48000 each. The first partner received ₹8000 less.

The Capital Reserve of ₹1,20,000 is credited, while the debit balance of ₹50,000 reduces the amount available for distribution. Thus, the net amount is ₹1,20,000 − ₹50,000 = ₹70,000. C’s share is 5/10, so the amount credited to C is ₹70,000 × 5/10 = ₹35,000. ₹60,000 represents C’s share of the Capital Reserve alone and ignores the debit balance. Exam tip: First calculate the net effect of reserves and accumulated losses, then distribute it among the old partners in their old ratio.

The General Reserve of ₹1,00,000 is credited to the partners in the old ratio, while Preliminary Expenses of ₹25,000 are written off in the same ratio. Thus, the net amount is ₹1,00,000 − ₹25,000 = ₹75,000. B’s share is ₹75,000 × 9/20 = ₹33,750. Option C is the total net amount, not B’s share. Exam tip: When a reserve and an accumulated expense are adjusted together, first find the net amount and then distribute it in the old profit-sharing ratio.

The governing concept is that reserves represent accumulated profits earned before the admission of the new partner. Therefore, they belong entirely to the old partners and must be transferred to their capital or current accounts in the old profit-sharing ratio. The new ratio applies only to profits and losses arising after reconstitution. Hence, distributing the reserve in the new ratio is the common conceptual mistake, so option A is correct. Crediting old partners is normally correct, and an accumulated loss is debited to old partners in the old ratio. Debiting a reserve account is part of the transfer entry, not the mistake itself.

Distributable amount is ₹110000 + ₹40000 - ₹25000 = ₹125000. C share is 5/10 so ₹62500 is credited.

The ₹50,000 credit balance of the Profit and Loss Account is distributed among the old partners in the ratio of 7:3, giving the first partner a credit of ₹50,000 × 7/10 = ₹35,000. The ₹80,000 debit balance of Advertisement Suspense is written off, resulting in a debit of ₹80,000 × 7/10 = ₹56,000 for the first partner. Therefore, the net effect is ₹56,000 debit − ₹35,000 credit = ₹21,000 debit. Exam tip: a reserve creates a credit effect, whereas writing off an accumulated loss or fictitious asset creates a debit effect.

Distributable amount is ₹120000 - ₹45000 - ₹30000 = ₹45000. First partner share is ₹45000 × 5/8 = ₹28125.

In new ratio 2:2:1 the new partner share is 1/5. Reserve is old profit so he should not have received ₹12000.

Both the Investment Fluctuation Reserve of ₹65,000 and the ₹15,000 increase in the investment’s market value are credited as gains to the old partners. Thus, the total amount available for distribution is ₹65,000 + ₹15,000 = ₹80,000. B’s share is 3/(4+3+3) = 3/10, so the amount credited to B is ₹80,000 × 3/10 = ₹24,000. ₹19,500 represents only B’s share of the reserve and ignores the increase in the investment’s value. Exam tip: first calculate the total gain or amount to be distributed, then apply the old profit-sharing ratio.

The General Reserve creates a credit effect of ₹80,000, whereas the accumulated loss creates a debit effect of ₹1,04,000. Thus, the net debit effect is ₹1,04,000 − ₹80,000 = ₹24,000. A’s share in the old ratio is ₹24,000 × 5/8 = ₹15,000 debit. Therefore, option A is correct. Exam tip: offset the reserve against the accumulated loss first, and then distribute the net balance in the old profit-sharing ratio.

The General Reserve is an accumulated profit and is credited to the old partners in their old profit-sharing ratio. The debit balance of the Profit and Loss Account represents an accumulated loss and is debited in the same ratio. Net amount to be adjusted = ₹1,44,000 − ₹24,000 = ₹1,20,000. B’s share = ₹1,20,000 × 4/12 = ₹40,000, so B’s account will be credited by ₹40,000. Exam tip: subtract an accumulated loss from the reserve before distributing the net amount; do not distribute the reserve alone.

The excess of the Workmen Compensation claim over the reserve is ₹1,26,000 − ₹96,000 = ₹30,000. This additional loss is borne by the old partners in their old ratio of 5:3. The first partner’s share is ₹30,000 × 5/8 = ₹18,750, so his capital account is debited by ₹18,750. Exam tip: Distribute any claim exceeding the reserve among the old partners in their old profit-sharing ratio.