Reserves

The direct answer is option A: debit the old partners in their old ratio. A debit balance of Profit and Loss Account represents an accumulated loss. This loss arose before the new partner was admitted, so it belongs to the old partners, not the new partner. The balance of ₹33,000 should therefore be transferred to the old partners’ capital or current accounts by debiting them in the old profit-sharing ratio. Option A is correct. Option B, crediting the new partner, is wrong because the loss existed before admission. Option C, adding it to General Reserve, is wrong because a debit balance is a loss, not a reserve or profit. Option D, debiting Bank, is wrong because no cash payment is involved; this is an internal adjustment between accounts. Memory cue: old loss means debit old partners; old profit means credit old partners.

The total amount distributed is ₹54,000 + ₹36,000 = ₹90,000. In the old ratio 2:1, B’s share is 1 out of 3 parts, so B receives ₹90,000 × 1/3 = ₹30,000. Therefore, ₹30,000 is credited to B’s account.

The Dividend Equalisation Reserve has a credit balance of ₹48,000, while the debit balance of the Profit and Loss Account must be deducted. Thus, the net amount is ₹48,000 − ₹18,000 = ₹30,000 credit. B’s share in the old ratio of 1:2 is ₹30,000 × 2/3 = ₹20,000 credit. Exam tip: First calculate the net reserve after adjusting the debit balance, and then distribute it among the partners in their old ratio.

First deduct the expected liability from the reserve: ₹90,000 − ₹52,000 = ₹38,000. This balance is distributed among the old partners in the ratio 3:2. Therefore, the first partner’s share is ₹38,000 × 3/5 = ₹22,800. ₹38,000 is the total balance, not the first partner’s share. Exam tip: Always deduct the related expected liability before distributing a reserve.

Accumulated profits are shared in old profit sharing ratio. Sacrificing ratio may be used in goodwill adjustment.

The governing concept is that accumulated profit or loss belongs to the period before reconstitution. Rights and obligations relating to that old period must therefore be allocated according to the old profit-sharing ratio, because that was the agreement under which the income or loss arose. The capital ratio is relevant only where the partnership agreement specifically requires it for a particular adjustment; it is not the normal basis for an accumulated loss. The new ratio applies to future profits, and the sacrificing ratio is used mainly for goodwill adjustment on admission. Therefore the incorrect capital-ratio allocation must be corrected with reference to the old profit-sharing ratio, making option A correct.

The direct answer is Option A: A received ₹10,000 less. Combine the two accumulated-profit amounts first: ₹70,000 + ₹30,000 = ₹1,00,000. A and B should receive this total in their old ratio 6:4. Total parts are 10, so A’s correct share is ₹1,00,000 × 6/10 = ₹60,000. But the amount was wrongly divided equally, so A actually received ₹1,00,000 ÷ 2 = ₹50,000. Difference: ₹60,000 − ₹50,000 = ₹10,000 less. Option A is correct. Option B is wrong because A did not receive extra. Option C is wrong because the difference is not ₹20,000. Option D is wrong because the old ratio is not equal; 6:4 means A deserves more. Memory cue: compare the correct ratio share with the wrongly received amount.

Both preliminary expenses and the debit balance of the Profit and Loss Account represent losses to be written off. Total amount = ₹25,000 + ₹15,000 = ₹40,000. A’s share in the old ratio is 3/5, so the amount debited to A’s Capital Account is ₹40,000 × 3/5 = ₹24,000. ₹40,000 is the total amount, not A’s individual share. Exam tip: Write off accumulated losses and debit balances among the old partners in their old profit-sharing ratio.

The General Reserve is credited to the partners, whereas Advertisement Suspense Expenditure represents a loss and must be deducted. Thus, the net amount is ₹80,000 − ₹30,000 = ₹50,000. The second partner is entitled to 4 out of the total 10 parts, so the net credit is ₹50,000 × 4/10 = ₹20,000. ₹32,000 would result from distributing the General Reserve alone, so it is incorrect. Exam tip: Deduct debit-balance losses from accumulated profits before distributing the net amount in the partners’ profit-sharing ratio.

After adjusting the insurance claim of ₹16,000 against the reserve of ₹44,000, the balance is ₹28,000. This balance is distributed in the old ratio of 5:6. Therefore, B’s share is ₹28,000 × 6/11 = ₹15,272.73, or approximately ₹15,273. ₹28,000 is the total remaining reserve, not B’s individual share. In the exam, first deduct the claim and then distribute the balance in the old profit-sharing ratio.

The governing concept is the comparison of an existing reserve with the actual liability or claim related to it. The Insurance Reserve of ₹30,000 is available to cover the insurance claim, but the claim amounts to ₹42,000. The reserve is therefore fully used, and the uncovered portion is ₹42,000 − ₹30,000 = ₹12,000. That excess represents an additional loss arising on revaluation and is transferred to the Revaluation Account, where it is borne by the old partners in their old ratio. Option B incorrectly calls the excess a profit, option C ignores the claim, and option D gives an old-period loss to the incoming partner. Hence option A is correct.

Both are old results so their net effect can be found and shared in old ratio. This keeps calculation clear.

The governing concept is the distinction between a reserve, which is an appropriation of accumulated profit, and an investment, which is a real asset. A Reserve Fund shown on the liabilities side represents an amount retained from past profits and is normally distributed among the old partners in their old profit-sharing ratio on admission. The separate investments shown against it do not disappear merely because the reserve is distributed; they remain assets of the firm unless they are specifically sold or otherwise transferred. Therefore option A correctly separates the capital adjustment from the asset position. Option B wrongly removes an asset, option C gives it to the new partner without instruction, and option D treats a reserve as cash expenditure.

A general reserve should be distributed among the old partners in their old profit-sharing ratio. The first partner’s correct share was ₹54,000 × 2/3 = ₹36,000. Under the incorrect capital ratio of 5:4, he received ₹54,000 × 5/9 = ₹30,000. Therefore, he received ₹36,000 − ₹30,000 = ₹6,000 less. Exam tip: Reserves and accumulated profits are generally distributed among old partners in the old profit-sharing ratio, not in the capital ratio.

Second partner's correct loss was ₹18000 but wrong debit was ₹24000. Therefore he was debited ₹6000 more.

An accumulated debit balance is an old-period loss and should be borne in the old profit-sharing ratio of 2:1. The second partner’s correct share is therefore ₹54,000 × 1/3 = ₹18,000. Under the incorrect capital ratio of 5:4, the second partner was charged 4/9 of ₹54,000, which is ₹24,000. Comparing the two amounts, the excess debit is ₹24,000 − ₹18,000 = ₹6,000. Thus the second partner was debited ₹6,000 more than the correct amount, so option A is correct. The other choices either reverse the difference, confuse the correct share with the error, or incorrectly claim that both ratios produce the same result.

The total distributable amount from both reserves is ₹50,000 + ₹25,000 = ₹75,000. Under the old profit-sharing ratio of 2:3, the second partner is entitled to \(\frac{3}{5}\) of this amount. Therefore, the amount credited is ₹75,000 × \(\frac{3}{5}\) = ₹45,000. Option C represents the total reserves, not the second partner’s share. Exam tip: Add all distributable reserves first, then distribute them in the old profit-sharing ratio.

The Investment Fluctuation Reserve is credited to the old partners’ Capital Accounts in the ratio 3:4. The first partner’s share is ₹21,000 × 3/7 = ₹9,000. Preliminary expenses are written off in the same ratio, so the first partner’s debit is ₹7,000 × 3/7 = ₹3,000. Therefore, the net effect is a credit of ₹9,000 − ₹3,000 = ₹6,000. Exam tip: subtract the partner’s share of expenses written off from the share of reserve credited.

When there is no claim the reserve remains like old profit. It is shared among old partners in old ratio.

Balance after deducting claim is like old profit. Therefore it is shared among old partners in old ratio.

A reserve is an amount created from profits earned before a new partner joins. Therefore, it belongs to the old partners in their old profit-sharing ratio. If a claim against the firm is greater than the reserve, the reserve can cover only part of it. The remaining amount is a loss related to the period before admission, so the old partners must bear it. The new partner is not responsible for this past deficiency.

Thus, the excess claim is debited to the old partners’ capital or current accounts in their old ratio. The bank account is not the party that bears the loss; it merely records payment. Hence option A, old partners in old ratio, is correct.

General Reserve represents profits accumulated before the new partner’s admission. Therefore, it belongs only to the old partners and is transferred to their capital accounts in the old profit-sharing ratio. The incoming partner gets no share in it. ₹15,000 is incorrect because the reserve should not be multiplied by the new partner’s 1/4 share. Exam tip: Profits or losses accumulated before admission are not shared with the incoming partner.

The debit balance of the Profit and Loss Account represents an accumulated loss of the period before the new partner’s admission. It is therefore borne by the old partners in their old profit-sharing ratio, and the new partner’s share is zero. Calculating ₹40,000 × 1/5 = ₹8,000 is incorrect because the new partner does not share past losses. Exam tip: Adjust accumulated profits or losses existing before admission only among the old partners.

After adjusting the accumulated loss against the accumulated profit, the net accumulated profit is ₹96,000 − ₹32,000 = ₹64,000. B’s share in the old ratio 4:3:1 is 3/8. Therefore, B’s share is ₹64,000 × 3/8 = ₹24,000, which will be credited to B’s account. ₹64,000 is the total net profit, while ₹36,000 results from using an incorrect ratio fraction. Exam tip: First calculate the net accumulated profit or loss, and then distribute it in the old profit-sharing ratio.

Final effect of profits and losses goes to partners capital or current accounts. In exams choose capital or current account as per account type.