Reserves

Correct answer: A. Credit ₹45,000

The General Reserve contributes a credit of ₹96,000, while the debit balance of the Profit and Loss Account reduces the accumulated profit available for distribution. Therefore, the net amount is ₹96,000 − ₹24,000 = ₹72,000. A’s share in the old profit-sharing ratio is \(5/8\), so the net credit to A’s Capital Account is ₹72,000 × \(5/8\) = ₹45,000. ₹72,000 is the total net amount, not A’s individual share. Exam tip: Reserves and accumulated profits or losses relating to the period before admission are adjusted among the old partners in their old profit-sharing ratio.

Correct answer: A. ₹20,000

Y’s share in the old ratio is \(\frac{5}{12}\). Therefore, Y receives \(₹84,000 \times \frac{5}{12}=₹35,000\) from the Reserve Fund. Writing off Advertisement Suspense reduces Y’s Capital Account by \(₹36,000 \times \frac{5}{12}=₹15,000\). Hence, the net credit is \(₹35,000-₹15,000=₹20,000\). Exam tip: a reserve is credited to the old partners, whereas accumulated fictitious expenditure is written off by debiting them in the old ratio.

Correct answer: A. Credit ₹60,000

General reserve is an accumulated profit, so it is credited to the partners’ capital or current accounts in the old profit-sharing ratio. Preliminary expenses are a fictitious asset and must be written off; therefore, they are deducted. Net amount = ₹1,50,000 − ₹30,000 = ₹1,20,000. C’s share = 5/10 × ₹1,20,000 = ₹60,000, so ₹60,000 will be credited to C’s account. ₹1,20,000 is the total net amount, not C’s individual share. Exam tip: Add accumulated-profit credits, deduct related debit balances, and distribute the resulting amount in the old ratio.

Correct answer: A. Debit the Revaluation Account by ₹17,000

The actual claim is ₹92,000, while the available Workmen Compensation Reserve is ₹75,000. Therefore, the excess liability is ₹17,000 (₹92,000 − ₹75,000). After the reserve is utilised, this excess is treated as a revaluation loss and debited to the Revaluation Account. It is not debited to the new partner’s account because the liability relates to the period before admission. Exam tip: If the actual claim exceeds the related reserve, debit the difference to the Revaluation Account.

Correct answer: A. ₹20,000

The surplus in the Workmen Compensation Reserve is ₹35,000, calculated as ₹1,20,000 − ₹85,000. Since the claim is lower than the reserve, this surplus is distributed among the old partners in their old profit-sharing ratio of 4:3. Therefore, A’s share = ₹35,000 × 4/7 = ₹20,000, which is credited to A’s Capital Account. Exam tip: When the claim is less than the reserve, distribute only the surplus in the old ratio, not the entire reserve.

Correct answer: A. ₹14000

The direct answer is ₹14,000, option A. When investments fall, the fall is a loss that is adjusted against Investment Fluctuation Reserve. The decrease is ₹3,00,000 − ₹2,64,000 = ₹36,000. The reserve is ₹50,000, so after meeting the loss, the balance is ₹50,000 − ₹36,000 = ₹14,000. This remaining amount is credited to and distributed among the old partners in their old ratio. Option A is correct because it is the remaining reserve. Option B, ₹36,000, is the investment loss, not the amount distributed. Option C, ₹50,000, is the original reserve and ignores the adjustment. Option D, ₹86,000, incorrectly adds the reserve and the loss instead of subtracting the loss. Remember: reserve minus fall in investment equals amount available for old partners.

Correct answer: A. ₹8,000

The governing concept is the use of Investment Fluctuation Reserve to absorb a fall in the value of investments. First calculate the actual fall: ₹2,10,000 − ₹1,84,000 = ₹26,000. The available reserve is ₹18,000, so it can absorb only ₹18,000 of that loss. The amount still uncovered is ₹26,000 − ₹18,000 = ₹8,000. This excess loss is transferred to the Revaluation Account and ultimately borne by the old partners in their old ratio. Option C is the total fall, not the excess after using the reserve; option B is only the reserve itself, and option D ignores the fall. Therefore option A is correct.

Correct answer: A. Entire ₹32000 will be distributed among old partners

There is an increase and not a fall in investments so the reserve is not needed. The full reserve is shared as old profit.

Correct answer: A. ₹10,000 less

A general reserve represents profits earned before C’s admission, so it should be distributed only between the old partners, A and B, in their old ratio of 3:2. A’s correct share = ₹50,000 × 3/5 = ₹30,000. Under the incorrect new ratio of 2:2:1, A received ₹50,000 × 2/5 = ₹20,000. Therefore, A received ₹10,000 less. Exam tip: Reserves and credit balances of the Profit and Loss Account are generally distributed among old partners in the old profit-sharing ratio.

Correct answer: A. About ₹8333

The new partner should not share old loss. Equal sharing among three wrongly debited him by about ₹8333.

Correct answer: A. ₹45,000

The combined amount of the two reserves is ₹90,000 + ₹30,000 = ₹1,20,000. Under the old ratio of 5:3, the second partner’s share is 3/8. Therefore, his share is ₹1,20,000 × 3/8 = ₹45,000. ₹75,000 represents the first partner’s 5/8 share, not the second partner’s share. In the exam, first combine all reserves and then apply the relevant partner’s fraction of the old ratio.

Correct answer: A. ₹15,000

After setting aside ₹40,000 for the expected liability, the remaining reserve is ₹64,000 − ₹40,000 = ₹24,000. This amount is distributed in the old profit-sharing ratio of 3:5. B’s share is \(\frac{5}{3+5} \times ₹24,000 = ₹15,000\). ₹24,000 is the total remaining reserve, not B’s individual share. Exam tip: First deduct the liability, then apply the partner’s share ratio to the balance.

Correct answer: A. ₹7000 debit to Revaluation Account

The liability exceeds the reserve by ₹7000. The excess is a loss of the firm and goes to Revaluation Account.

Correct answer: A. In old profit sharing ratio of old partners

Both reserves are profits before admission. Therefore they are distributed among old partners in old ratio.

Correct answer: A. लाभ को हानि की तरह लिखा गया

The governing accounting rule is that an accumulated reserve is an undistributed profit belonging to the old partners. When the reserve is transferred to their capital or current accounts, the Reserve Account is debited because it is closed, while the old partners’ accounts are credited because their claims increase. Debiting those capital accounts reverses the normal effect: it reduces the partners’ capital as though a loss had been incurred. Thus the entry treats an accumulated profit as a loss, which is the main error and makes option A correct. Option B describes the opposite mistake, option C is irrelevant because the new partner has no right to past reserves, and option D confuses a book reserve with cash.

Correct answer: A. Accumulated loss was treated as profit

A debit balance in the Profit and Loss Account represents an accumulated loss. This loss should be debited to the old partners’ capital or current accounts in their old profit-sharing ratio, not credited. Therefore, crediting the old partners means that the accumulated loss has been treated as a profit. Option B describes the opposite situation, since accumulated profit is normally credited. Exam tip: remember that a debit balance represents a loss, while a credit balance represents a profit.

Correct answer: A. ₹18,000

The Profit and Loss Account credit balance is ₹72,000, while Advertisement Suspense Expenditure is a debit or loss item of ₹18,000. Therefore, net accumulated profit = ₹72,000 − ₹18,000 = ₹54,000. B’s share under the old ratio is \(2/6\), so B’s credit = ₹54,000 × \(2/6\) = ₹18,000. Exam tip: first adjust the credit balance for the debit item, and then distribute the net amount in the old profit-sharing ratio.

Correct answer: A. Credit ₹18,000

The General Reserve is distributed in the old ratio, so the first partner receives a credit of ₹75,000 × 9/15 = ₹45,000. Preliminary Expenses are written off, so his share is debited by ₹45,000 × 9/15 = ₹27,000. Therefore, the net effect is ₹45,000 − ₹27,000 = ₹18,000 credit. The ₹45,000 credit would result only if the preliminary expenses were ignored. Exam tip: credit items that give partners a benefit and debit items that are written off.

Correct answer: A. Debit ₹10000

The accumulated loss exceeds the accumulated profit by ₹18000, so the net effect is a loss of ₹18000. Under the old ratio of 5:4, the first partner’s share is \(\frac{5}{9} \times ₹18000 = ₹10000\). A loss is debited to the partner’s Capital Account, so the correct effect is a debit of ₹10000. The ₹10000 credit option reverses the accounting treatment. Exam tip: First determine the net profit or loss, and then distribute it in the old ratio.

Correct answer: A. ₹18,000 under-recorded

The total of the old partners’ ratio is 2+3+4=9. C’s correct share is ₹1,08,000 × 4/9 = ₹48,000. Since only ₹30,000 was recorded, the amount under-recorded is ₹48,000 − ₹30,000 = ₹18,000. Exam tip: Reserves and accumulated profits are distributed among old partners in their old profit-sharing ratio.

Correct answer: A. Nothing

The direct answer is nothing, option A. Workmen Compensation Reserve is used when a claim is made against the business. Here the reserve is ₹65,000 and the claim is also ₹65,000. Thus the entire reserve is required: ₹65,000 − ₹65,000 = zero. Since no surplus remains, nothing is distributed or credited to the old partners from this reserve. Option A is correct because the claim exactly equals the reserve. Option B, credit ₹65,000, would be suitable only if there were no claim or if the full reserve were surplus. Option C, credit ₹32,500, has no basis because the claim is not half the reserve. Option D, debit ₹65,000, is wrong because the reserve is used to meet the claim; the old partners do not receive a debit in this situation. Exam cue: compare reserve and claim. Equal amounts leave zero surplus.

Correct answer: A. When claim equals the reserve

If claim equals the reserve the whole reserve is used for the claim. With no balance there is no distribution.

Correct answer: A. Zero

The direct answer is Option A: Zero. The Investment Fluctuation Reserve is ₹42,000 and the fall in investments is also ₹42,000. Compare the two amounts: ₹42,000 − ₹42,000 = ₹0. The entire reserve is used to cover the entire fall in the investment value. Since nothing remains in the reserve after adjustment, there is no balance to distribute among the old partners. Option A is correct. Option B is wrong because ₹42,000 is the amount used for adjustment, not the amount left for partners. Option C is wrong because the reserve and fall are not added; the reserve is set off against the fall. Option D is wrong because half the reserve is not the required treatment. The key rule is: if reserve equals the fall, old partners receive nothing from that reserve.

Correct answer: A. Approximately ₹20,417

The fall in investments of ₹25,000 is first adjusted against the Investment Fluctuation Reserve. Balance reserve = ₹60,000 − ₹25,000 = ₹35,000. This balance is distributed in the old ratio of 7:5, so the first partner’s share = ₹35,000 × 7/12 = ₹20,416.67, or approximately ₹20,417. ₹14,583 is the second partner’s share, while ₹25,000 is only the amount of the fall in investments. Exam tip: Distribute only the reserve left after adjusting the fall in investments, not the entire reserve.

Correct answer: A. Without special instruction it should have been distributed among old partners

General reserve is old accumulated profit. Without special instruction it is distributed among old partners in old ratio.