Reserves

The General Reserve of ₹1,00,000 is an accumulated profit, whereas the ₹30,000 debit balance of the Profit and Loss Account is an accumulated loss. Therefore, the net accumulated profit is ₹1,00,000 − ₹30,000 = ₹70,000. This amount is distributed in the old ratio. A’s share is ₹70,000 × 7/10 = ₹49,000, so A’s capital account is credited by ₹49,000. ₹70,000 is the total net amount, not A’s individual share. Exam tip: First offset accumulated losses against reserves, then distribute the balance in the old profit-sharing ratio.

After adjusting the claim, the surplus in the reserve is ₹96,000 − ₹60,000 = ₹36,000. Since this surplus belongs to the old partners, it is distributed in their old profit-sharing ratio of 5:3. The second partner’s share is therefore \(\frac{3}{8} \times ₹36,000 = ₹13,500\). ₹36,000 is the total surplus, while ₹22,500 represents the first partner’s share. Exam tip: If a reserve exceeds the actual liability or claim, distribute the surplus among the old partners in their old profit-sharing ratio.

The claim is ₹17000 more than the reserve. The excess is debited to Revaluation Account as pre-admission loss.

The direct answer is ₹25,000, option A. The fall in investment is ₹5,00,000 − ₹4,55,000 = ₹45,000. This loss is adjusted against the Investment Fluctuation Reserve of ₹70,000. The balance available for distribution is ₹70,000 − ₹45,000 = ₹25,000. Therefore, option A is correct. Option B, ₹45,000, is only the loss in the investment value, not the remaining reserve. Option C, ₹70,000, is the original reserve before adjustment and ignores the loss. Option D, ₹1,15,000, results from adding the reserve and the fall; that is not the accounting treatment. The reserve protects against the loss, so the loss consumes part of it. Exam cue: whenever reserve is greater than investment loss, distribute the difference; whenever loss equals reserve, distribute zero.

The total fall in the investment’s value is ₹1,80,000 − ₹1,48,000 = ₹32,000. The Investment Fluctuation Reserve absorbs ₹24,000 of this loss. Therefore, the excess loss is ₹32,000 − ₹24,000 = ₹8,000, which will be debited to the Revaluation Account. ₹32,000 is the total loss, not the excess loss. Exam tip: first calculate the total fall in value and then subtract the available reserve.

There is no fall in investments so the reserve is not needed. The full reserve is shared as old profit among old partners.

A General Reserve created before the admission of a new partner must be distributed only among the old partners in their old profit-sharing ratio. A’s correct share was ₹75,000 × 4/5 = ₹60,000. Due to the error, A received ₹75,000 × 3/5 = ₹45,000 under the new ratio. Thus, A received ₹60,000 − ₹45,000 = ₹15,000 less. The option showing ₹15,000 more is incorrect because it reverses the direction of the difference. Exam tip: For reserves existing before admission, use the old partners’ old ratio.

The correct answer is Option A, Zero. A debit balance of the Profit and Loss Account means an old loss of ₹36,000. This loss arose before the admission of the new partner, so only the old partners must bear it in their old profit-sharing ratio. The new partner did not belong to the firm when this loss was incurred and therefore cannot be charged with any part of it. If ₹36,000 were divided equally among three partners, each share would be ₹12,000, but that treatment is incorrect. Option A is correct because the new partner's share is nil. Option B, ₹12,000, is the equal division among three, but it wrongly makes the incoming partner bear an old loss. Option C, ₹18,000, is not the new partner's equal share and has no correct basis here. Option D, ₹36,000, charges the entire old loss to the new partner, which is also wrong. The key rule is: losses or debit balances belonging to the period before admission are adjusted only among the old partners. Memory cue: admission starts a new relationship; do not pass old losses to the incoming partner.

The total amount to be distributed is ₹45,000 + ₹27,000 = ₹72,000. In the old ratio of 5:4, B’s share is \(\frac{4}{9}\), since 4 represents B’s portion. Therefore, the amount credited to B’s Capital Account is \(₹72,000 \times \frac{4}{9} = ₹32,000\). ₹72,000 is the combined value of both reserves, whereas ₹27,000 is only the Capital Reserve. Exam tip: Unless stated otherwise, reserves distributed at admission are shared by the old partners in their old profit-sharing ratio.

The Dividend Equalisation Reserve is distributed among the old partners in the old ratio. The second partner’s share is \(5/8\), giving a credit of ₹64,000 × \(5/8\) = ₹40,000. Advertisement Suspense Expenditure is a fictitious asset written off in the old ratio, creating a debit of ₹16,000 × \(5/8\) = ₹10,000 for the second partner. Thus, the net effect is ₹40,000 − ₹10,000 = ₹30,000 credit. Exam tip: distributing a reserve gives a credit effect, whereas writing off a suspense expenditure gives a debit effect.

After setting aside ₹52,000 for the estimated liability, the balance of the reserve is ₹88,000 − ₹52,000 = ₹36,000. The old ratio of 2:3 has 5 total parts, so the first partner’s share is ₹36,000 × 2/5 = ₹14,400. ₹21,600 is the second partner’s share, whereas ₹36,000 is the total balance available for distribution. Exam tip: First deduct the amount required for the liability, and then distribute the remaining reserve in the old ratio.

The Contingency Reserve of ₹34,000 is used to meet the liability. Since the actual liability is ₹41,000, a shortfall of ₹7,000 remains. This shortfall is a revaluation loss and is therefore debited to the Revaluation Account. Debiting the full ₹41,000 would be incorrect because ₹34,000 is already covered by the reserve. Exam tip: Subtract the available reserve from the actual liability; the balance is debited to Revaluation Account.

Reserve Fund is accumulated profit and investment is a separate asset. Treating both as the same is a common exam error.

General Reserve has credit balance and must be debited to close it. Crediting it will not close the account.

Accumulated loss reduces capital so capital accounts should be debited. Crediting gives the opposite effect.

The ₹90,000 credit balance in the Profit and Loss Account is an accumulated profit, whereas Preliminary Expenses of ₹27,000 represent a debit item. The net amount available for distribution is therefore ₹90,000 − ₹27,000 = ₹63,000. Since the old profit-sharing ratio 4:3:2 totals 9, B’s share is 3/9. Thus, the amount credited to B is ₹63,000 × 3/9 = ₹21,000. ₹30,000 would result from distributing the gross credit balance without adjusting the preliminary expenses. Exam tip: adjust debit balances first, and then distribute the resulting net reserve in the old profit-sharing ratio.

The third partner's correct share is ₹126000 × 7/14 = ₹63000. Recording ₹54000 means ₹9000 less was recorded.

The Reserve Fund is distributed among the old partners in their old profit-sharing ratio. The third partner’s correct share is \(₹1,26,000 \times \frac{7}{2+5+7}=₹63,000\). Since only ₹54,000 was credited, the amount understated is \(₹63,000-₹54,000=₹9,000\). Hence, option A is correct; option B incorrectly treats the shortfall as an excess. Exam tip: Calculate a partner’s reserve share by multiplying the total reserve by that partner’s ratio term and dividing by the sum of all ratio terms.

The ₹30,000 fall in investments will be fully adjusted against the ₹30,000 Investment Fluctuation Reserve. Therefore, no net revaluation loss or profit will remain, and no balance from the reserve will be credited to the old partners. Option B would be correct only if the reserve exceeded the fall in investments. Exam tip: Compare the reserve with the actual fall; when they are equal, the balance is nil.

The decrease in the value of investments, ₹18,000, is adjusted against the Investment Fluctuation Reserve. Therefore, the remaining reserve is ₹54,000 − ₹18,000 = ₹36,000. In the old ratio 5:4, the first partner’s share is \(\frac{5}{5+4}=\frac{5}{9}\). Hence, the first partner receives ₹36,000 × \(\frac{5}{9}\) = ₹20,000. ₹36,000 is the total remaining reserve, not the first partner’s share. Exam tip: Deduct the investment decrease from the reserve first, then distribute the balance in the old ratio.

General reserve is accumulated profit before admission. Without special instruction it belongs to old partners.

It is an old loss and old partners bear it. Therefore it should be debited to their capital accounts.

The total amount to be distributed is ₹63,000 + ₹27,000 = ₹90,000. A’s share under the old profit-sharing ratio is \(\frac{1}{1+2}=\frac{1}{3}\). Therefore, the amount credited to A is ₹90,000 × \(\frac{1}{3}\) = ₹30,000. ₹90,000 is the total reserve amount, whereas ₹27,000 represents only the Capital Reserve. Exam tip: When the question states that reserves are to be distributed, allocate them among the old partners in their old profit-sharing ratio.

The Dividend Equalisation Reserve is credited to the old partners, whereas the debit balance of the Profit and Loss Account is debited to them. Therefore, the net credit is ₹57,000 − ₹21,000 = ₹36,000. A’s share in the old ratio is \(5/9\), so A will be credited with \(₹36,000 \times 5/9 = ₹20,000\). ₹36,000 is the total net amount for both partners, not A’s individual amount. Exam tip: reserves and accumulated losses are adjusted among old partners in their old profit-sharing ratio.

After settling the liability, the amount available for distribution is ₹75,000 − ₹45,000 = ₹30,000. In the old ratio of 4:1, the second partner's share is 1/(4+1) = 1/5. Therefore, the second partner receives ₹30,000 × 1/5 = ₹6,000. ₹30,000 is the total amount available for distribution, while ₹24,000 is the first partner's share. Exam tip: Deduct the liability first and then apply the concerned partner's fraction of the old ratio.