Reserves

The General Reserve represents profits earned before C’s admission, so it should be distributed only among the old partners in their old ratio of 5:3. A’s correct share = ₹96,000 × 5/8 = ₹60,000. Due to the error, A received ₹96,000 × 2/6 = ₹32,000 under the new ratio 2:3:1. Therefore, A received ₹60,000 − ₹32,000 = ₹28,000 less. Exam tip: Reserves and accumulated profits earned before admission are distributed among the old partners in their old profit-sharing ratio.

The correct answer is Option A, Zero. The debit balance of the Profit and Loss Account is an old loss of ₹60,000. It belongs to the period before the new partner joined. Accounting fairness requires the old partners to bear this loss in their old ratio, because they were the partners who earned or incurred results during that earlier period. The incoming partner has no responsibility for a past debit balance. Option A is therefore correct: the new partner's share is ₹0. Option B, ₹20,000, is obtained by dividing ₹60,000 equally among three, but that ignores the date of admission and wrongly charges an old loss to the new partner. Option C, ₹30,000, is neither the equal one-third share nor a valid treatment. Option D, ₹60,000, would transfer the entire past loss to the incoming partner and is completely unjustified. The amount of the loss does not change the rule; whether it is ₹60,000 or another amount, the new partner bears zero of a pre-admission loss. Exam cue: first identify when the loss arose, then decide who was a partner at that time.

The total amount of both reserves is ₹72,000 + ₹48,000 = ₹1,20,000. Under the old ratio of 7:5, B’s share is \(\frac{5}{12}\). Therefore, B’s credit is \(₹1,20,000 \times \frac{5}{12} = ₹50,000\). ₹48,000 represents only the Capital Reserve, whereas the question asks for B’s share in both reserves. Exam tip: On reconstitution, accumulated profits and reserves are generally distributed among the old partners in their old profit-sharing ratio.

The governing concept is that a reserve is distributed as accumulated profit, whereas Advertisement Suspense Expenditure is a debit balance and reduces the amount available for distribution. The net accumulated amount is ₹90,000 − ₹30,000 = ₹60,000. The second partner’s old-ratio share is 6/(4+6) = 6/10. Therefore, his net credit is ₹60,000 × 6/10 = ₹36,000. Option A is consequently correct. ₹54,000 is the first partner’s share if the ratio is applied incorrectly, ₹18,000 does not represent the required net share, and ₹60,000 is the total net amount before division between the partners.

After adjusting the estimated liability of ₹65,000, the balance of the reserve is ₹1,05,000 − ₹65,000 = ₹40,000. The first partner's share in the old ratio of 3:5 is 3/8. Therefore, his share is ₹40,000 × 3/8 = ₹15,000. ₹40,000 is the total remaining reserve, whereas ₹65,000 is the liability adjusted against it. Exam tip: First calculate the balance reserve, then apply the concerned partner's fraction of the old ratio.

The actual liability is ₹58,000, while the available Contingency Reserve is only ₹46,000. Therefore, the shortfall of ₹12,000 (₹58,000 − ₹46,000) is an additional loss to the firm and is debited to the Revaluation Account. It is not directly credited to the old partners or debited to the new partner’s account. Exam tip: Subtract the reserve available from the actual liability; the balance is treated as revaluation loss.

Reserve Fund and Reserve Fund Investment are two separate accounting items. The Reserve Fund represents accumulated profit and, on admission, is distributed among the old partners in their old profit-sharing ratio. The investment is an asset of the firm and continues to appear unless it is specifically sold or revalued. Hence option A is correct; the other treatments confuse the reserve with its investment.

General Reserve is profit and increases capital. Therefore old partners capital accounts should be credited.

Debit balance is old loss and should be debited to capital accounts. Crediting will show the loss like profit.

Preliminary Expenses are a debit item, so they must be deducted from the Profit and Loss Account’s credit balance. Net accumulated profit = ₹1,44,000 − ₹36,000 = ₹1,08,000. B’s share in the old ratio is 4/(5+4+3) = 4/12. Therefore, the amount credited to B = ₹1,08,000 × 4/12 = ₹36,000. Exam tip: calculate the net reserve first and then distribute it in the old profit-sharing ratio.

The governing concept is that the Reserve Fund is a credit balance distributed to old partners, while a Profit and Loss debit balance is an accumulated loss charged to them. The net accumulated profit is ₹120,000 − ₹50,000 = ₹70,000. The first partner’s old-ratio share is 11/(11+9) = 11/20. Therefore, the net credit is ₹70,000 × 11/20 = ₹38,500. Hence option A is correct. ₹66,000 is not the first partner’s calculated share, ₹27,500 results from an incorrect subtraction or allocation, and ₹70,000 is the total net amount before applying the ratio.

The governing concept is that an accumulated loss exceeding accumulated profit creates a net debit balance, which must be charged to the old partners in their old ratio. Net accumulated loss = ₹100,000 − ₹64,000 = ₹36,000. The second partner’s share in the old ratio is 5/(7+5) = 5/12. Therefore, the amount debited to him is ₹36,000 × 5/12 = ₹15,000. Option A is correct. A credit would reverse the nature of the net balance, ₹36,000 ignores the partner’s fraction, and ₹50,000 does not follow either the net calculation or the stated ratio.

The third partner's correct share is ₹154000 × 7/14 = ₹77000. Recording ₹70000 means ₹7000 less recorded.

The whole reserve will be used to meet the claim. So no balance will be distributed among old partners.

The fall of ₹48,000 in investments will be fully adjusted against the Investment Fluctuation Reserve of ₹48,000. Therefore, no reserve balance will remain and no additional loss will be transferred to the Revaluation Account. Option B is incorrect because the reserve is distributed among old partners only when a surplus remains after adjusting the fall. Exam tip: When the reserve equals the fall in investment value, both the remaining balance and additional loss are nil.

The fall in investment value of ₹27,000 is first adjusted against the Investment Fluctuation Reserve. The balance is ₹72,000 − ₹27,000 = ₹45,000. The second partner’s share in the old ratio 5:4 is 4/9, so the amount received is ₹45,000 × 4/9 = ₹20,000. In such questions, distribute only the balance reserve after adjustment, not the original reserve amount.

General Reserve is pre-admission accumulated profit. Without special instruction it is distributed among old partners.

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

Both the Reserve Fund and Capital Reserve represent accumulated profits belonging to the old partners, so they are distributed in the old ratio. Total amount = ₹81,000 + ₹45,000 = ₹1,26,000. A’s share = 4/(4+5) × ₹1,26,000 = 4/9 × ₹1,26,000 = ₹56,000. Therefore, ₹56,000 will be credited to A’s Capital Account. Exam tip: On admission, accumulated profits are distributed among the old partners in their old ratio, not in the new ratio.

The Dividend Equalisation Reserve has a credit balance of ₹76,000, while the debit balance of the Profit and Loss Account must be adjusted against it. Therefore, the net amount is ₹76,000 − ₹28,000 = ₹48,000. B’s share in the old ratio is \(\frac{5}{8} \times ₹48,000 = ₹30,000\), so B’s Capital Account is credited by ₹30,000. Exam tip: first calculate the net reserve after adjusting the debit balance, and then distribute it in the old profit-sharing ratio.

After paying the liability, the balance of the reserve is ₹96,000 − ₹56,000 = ₹40,000. The first partner's share in the old ratio of 6:4 is 6/10; therefore, it is ₹40,000 × 6/10 = ₹24,000. ₹40,000 represents the entire balance reserve, not the first partner's share. Exam tip: subtract the liability first and then apply the relevant fraction of the old ratio.

Accumulated profit is connected with the period before a new partner enters the firm. During that period, only the old partners supplied capital, accepted risks, and shared profits. The incoming partner was not entitled to profits earned before admission. Therefore, such profit must be distributed among the old partners according to their old profit-sharing ratio.

Option A gives this exact reason and is correct. The new ratio is not used for every accounting item; it applies to profits and losses arising after reconstitution. The statement that accumulated profit is always a loss is also wrong, because accumulated profit is a credit or benefit for the partners. Similarly, the new partner does not automatically receive the whole amount. The timing of the profit determines the appropriate ratio.

Accumulated loss arises before the admission of the new partner, so it must be borne only by the old partners in their old profit-sharing ratio. Including the new partner is the main error because the new partner was not a partner during the period in which the loss occurred. Option B describes the correct treatment, not an error. Exam tip: Pre-admission profits, losses and accumulated items are generally adjusted among the old partners in their old ratio.

First partner's correct loss was ₹24000 but equal sharing debited ₹33000. So he was debited ₹9000 more.

Preliminary Expenses and Advertisement Suspense Expenditure are accumulated losses or expenses. On reconstitution, their total debit balance is written off among the old partners in their old profit-sharing ratio, because these amounts relate to the earlier business period. The total amount to be borne is ₹42,000 + ₹18,000 = ₹60,000.

The old ratio is 7:5, giving 12 total parts. The first partner’s share is therefore ₹60,000 × 7/12 = ₹35,000. This amount is debited to that partner’s capital or current account. Option A is correct. ₹60,000 would be the total debit for all old partners, not the amount for the first partner alone; ₹42,000 ignores the advertisement suspense expenditure.