Reserves

Correct answer: A. ₹3,000

The governing concept is that preliminary expenses are an accumulated loss or deferred expense that must be written off on reconstitution. The loss is borne by the old partners in their old profit-sharing ratio. A and B share 3:1, making 4 total parts. B’s share is one part, so the amount debited to B is ₹12,000 × 1/4 = ₹3,000. Therefore, option A is correct. A would bear ₹9,000, which explains option B. Option C assumes equal sharing, and option D charges the entire loss to B, neither of which follows the stated ratio.

Correct answer: A. ₹36000

General Reserve is distributed among old partners in the old ratio. A share is 3/5 of ₹60000 which is ₹36000.

Correct answer: B. Old partners in old ratio

Credit balance is accumulated profit so it belongs to old partners. It is shared in old profit ratio.

Correct answer: B. Because it is accumulated profit earned before admission

A reserve generally represents profit earned and accumulated before the date of admission. Therefore, it belongs only to the old partners and is distributed among them in their old profit-sharing ratio through their capital or current accounts. The new partner is entitled to profits earned after admission, not to profits accumulated earlier. Exam tip: At admission, distribute an existing general reserve among the old partners in their old ratio; a reserve need not be held in cash.

Correct answer: B. ₹10,000

On the admission of a new partner, the General Reserve is distributed among the old partners in their old profit-sharing ratio. B’s share is 1/(2+1) = 1/3. Therefore, B receives ₹30,000 × 1/3 = ₹10,000. Exam tip: Use the old partners’ ratio for distributing reserves, not the new partner’s ratio.

Correct answer: C. ₹10,000

The Reserve Fund is distributed among the old partners in their old profit-sharing ratio. The total ratio is 4 + 3 + 1 = 8, and C’s share is 1/8. Therefore, C’s share = ₹80,000 × 1/8 = ₹10,000. The ₹20,000 option represents a 1/4 share, which corresponds to A’s ratio, not C’s. Exam tip: For distributing reserves on admission, always use the old partners’ old profit-sharing ratio.

Correct answer: A. General Reserve Account

Reserve has credit balance so it is debited to close it. Old partners capital accounts are credited.

Correct answer: B. Reserve debit and Old partners capital credit

Reserve is accumulated profit and is given to old partners. So reserve is debited and old capital accounts are credited.

Correct answer: B. Debit to old partners

Debit balance is accumulated loss. It is debited to old partners capital accounts in old ratio.

Correct answer: A. ₹20,000

A debit balance in the Profit and Loss Account represents accumulated loss, which is debited to the partners’ accounts in their old profit-sharing ratio. A’s share is 5/(5+3) = 5/8. Therefore, the amount debited to A is ₹32,000 × 5/8 = ₹20,000. ₹12,000 is B’s share, not A’s. Exam tip: Use the old ratio for distributing accumulated profits or losses unless the question specifies otherwise.

Correct answer: A. Distribute among old partners in old ratio

When there is no claim the full reserve is treated as accumulated profit. It is shared among old partners in old ratio.

Correct answer: C. ₹40,000

The claim is first adjusted against the Workmen Compensation Reserve. The balance is distributed to the old partners through their capital or current accounts in their old profit-sharing ratio: ₹70,000 − ₹30,000 = ₹40,000. Exam tip: Deduct the related liability from the reserve before distributing the surplus.

Correct answer: B. ₹15000 loss debit

Claim exceeds reserve by ₹15000 so it is an extra loss. It is debited to old partners in old ratio.

Correct answer: C. ₹12000

Loss on investment is ₹8000 and is adjusted from the reserve. Remaining ₹12000 is shared among old partners.

Correct answer: A. Full reserve is distributed and increase is separate gain

Increase in investment is a gain and the reserve also belongs to old partners. Both go to old partners in old ratio.

Correct answer: A. Because it is an outside liability

Employees Provident Fund is a liability towards employees. It is not distributed as profit among old partners.

Correct answer: A. Debit Capital Reserve ₹24,000; credit old partners’ Capital/Current Accounts ₹12,000 each

Capital Reserve represents accumulated profit earned by the old partners. Therefore, on admission of a new partner, it is distributed among the old partners in their old profit-sharing ratio. Dividing ₹24,000 in the ratio 1:1 gives ₹12,000 to each partner. The entry debits Capital Reserve and credits the Capital or Current Accounts of the two old partners by ₹12,000 each. It is not credited to the new partner, and no bank transaction is involved. Exam tip: Existing reserves at admission are generally distributed among old partners in their old ratio.

Correct answer: B. Error because old profits are shared in old ratio

Accumulated profits belong to the period before admission. Therefore they should be shared among old partners in old ratio.

Correct answer: A. Accumulated profit

General Reserve is created by retaining a portion of profits in the business. Although it appears on the liabilities or equity side of the balance sheet, it is not an outside liability such as a bank loan. It represents accumulated undistributed profit belonging to the existing partners. Therefore, option A is correct; the other choices describe unrelated items.

Correct answer: A. ₹21,000

The General Reserve and the credit balance of the Profit and Loss Account are both accumulated profits. Thus, the total amount is ₹50,000 + ₹20,000 = ₹70,000. B’s share under the old profit-sharing ratio is \(3/10\), so the amount credited to B is \(₹70,000 \times 3/10 = ₹21,000\). ₹35,000 is half of the total, but B’s share is 3/10, not one-half. Exam tip: Reserves and accumulated profits are distributed among old partners in their old profit-sharing ratio.

Correct answer: B. ₹15,000 profit

The General Reserve of ₹25,000 is an accumulated profit, whereas the debit balance of the Profit and Loss Account of ₹10,000 is an accumulated loss. Therefore, net accumulated profit = ₹25,000 − ₹10,000 = ₹15,000. This amount will be distributed between the old partners in the ratio of 2:3; the ratio does not affect the calculation of the net amount. In the exam, remember to deduct a debit balance from the reserve.

Correct answer: A. Debit old partners in old ratio

Advertisement Suspense is a deferred or fictitious asset. On writing it off old partners are debited like accumulated loss.

Correct answer: A. New partner may get unfair share in old profit

If old reserve is not distributed the new partner may share it later. Therefore it is adjusted on admission.

Correct answer: C. No direct effect on total assets

Distribution of reserve only reduces reserve and increases capital on liabilities side. It has no direct effect on total assets.

Correct answer: A. Capital accounts are credited

Reserve is accumulated profit so old partners capital increases. Hence capital accounts are credited.