Reserves

When there is no liability Contingency Reserve is shared like accumulated profit in old ratio. B share is ₹49000 × 2/7 = ₹14000.

The direct answer is option A: ₹48,000 is credited to A. General Reserve is an accumulated profit earned before admission, so it is distributed only among the old partners in their old ratio. A and B share in the ratio 4:3. Total parts are 4 + 3 = 7. A has 4 parts out of 7. Calculation: A’s credit = ₹84,000 × 4/7. Since ₹84,000 ÷ 7 = ₹12,000, A receives ₹12,000 × 4 = ₹48,000. B receives ₹12,000 × 3 = ₹36,000; the total is ₹84,000. Option A is correct because it is A’s four-part share. Option B is wrong because ₹36,000 is B’s three-part share. Option C is wrong because ₹42,000 is half the reserve and does not follow the 4:3 ratio. Option D is wrong because the entire reserve cannot be credited to A; B must receive his proportionate share. The new partner receives none of this old reserve merely because of admission. Memory cue: for a 4:3 ratio, divide the reserve into seven equal parts and give A four.

Credit balance is accumulated profit and is shared in old ratio. C share is ₹54000 × 5/9 = ₹30000.

On the admission of a new partner, the Reserve Fund is distributed among the old partners in their old profit-sharing ratio. The second partner's share is \(4/(5+4)=4/9\). Therefore, the amount credited to him is \(₹63,000 \times 4/9 = ₹28,000\). ₹35,000 is the first partner's share; remember to use the total ratio of 9.

Accumulated profit relates to the old period. Therefore it is shared among old partners in old ratio.

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

The reserve has credit balance so it is debited to close it. Old partners are credited as profit holders.

A debit balance in the Profit and Loss Account represents accumulated loss, which is debited to the old partners’ Capital Accounts in their old profit-sharing ratio. The total ratio is 3 + 4 = 7. Therefore, the second partner’s share is ₹42,000 × 4/7 = ₹24,000. ₹21,000 represents half the loss, not the second partner’s proportionate share. Exam tip: For accumulated losses, debit the partners’ Capital Accounts in the old ratio.

Profit and Loss debit balance is accumulated loss. It is debited to old partners in old profit ratio.

When there is no claim this reserve is treated like accumulated profit. So the full balance is shared among old partners.

The correct answer is C: ₹66,000. Workmen Compensation Reserve is ₹110,000, while the actual claim is ₹44,000. First, the claim is adjusted against the reserve. The remaining reserve is calculated as ₹110,000 − ₹44,000 = ₹66,000. This remaining amount represents an accumulated benefit belonging to the old partners, so it is distributed among them in their old profit-sharing ratio. Option A ignores the claim and distributes the entire reserve. Option B distributes only the claim, although the claim is an amount to be provided for, not the remaining benefit. Option C correctly gives the balance. Option D is wrong because a positive reserve remains after settling the claim. Memory cue: reserve available for old partners equals reserve balance minus the related claim.

The direct answer is Option A: the extra effect is ₹14,000 extra loss. The workmen compensation reserve is ₹36,000, but the actual claim is ₹50,000. First compare the claim and reserve: ₹50,000 − ₹36,000 = ₹14,000. The reserve covers only ₹36,000 of the claim. The remaining ₹14,000 is an additional burden and therefore an additional loss for the firm. This extra loss is debited to the old partners in their old profit-sharing ratio, because it relates to the period before admission. Option A is correct. Option B is wrong because the claim is greater than the reserve, so there cannot be an extra profit. Option C is wrong because ₹36,000 is the reserve already available, not the extra effect. Option D is wrong because there is a remaining uncovered claim, so the effect is not zero. If the claim had been less than the reserve, the unused balance could create a different adjustment; here the claim exceeds it. Memory cue: excess claim over reserve equals extra loss.

The claim and reserve are equal so the full reserve is adjusted against claim. Nothing remains for distribution.

The fall in the investment value must first be compared with the Investment Fluctuation Reserve. Book value is ₹1,50,000 and market value is ₹1,32,000, so the loss on investment is ₹1,50,000 − ₹1,32,000 = ₹18,000. The reserve is ₹32,000, which is more than the loss. After absorbing the loss, the unused balance is ₹32,000 − ₹18,000 = ₹14,000. Since this reserve represents an accumulated amount belonging to the old partners, the remaining ₹14,000 is distributed among them in their old profit-sharing ratio. Thus, option B is correct. Option A is only the loss, option C ignores the adjustment, and option D ignores the surplus reserve.

The direct answer is Option A: the extra loss is ₹9,000. Investment Fluctuation Reserve is ₹28,000, while the loss on investment is ₹37,000. Calculate the uncovered amount step by step: ₹37,000 − ₹28,000 = ₹9,000. The reserve absorbs the first ₹28,000 of the investment loss. The remaining ₹9,000 is the extra loss that must be recognised separately and debited to the old partners in their old ratio. Option A is correct. Option B is wrong because ₹28,000 is only the reserve used against the loss, not the amount left over. Option C is wrong because ₹37,000 is the total investment loss, not the extra loss after using the reserve. Option D is wrong because the loss is greater than the reserve, leaving an uncovered balance. The reasoning is always: compare total loss with the reserve, use the reserve first, then calculate the excess. If total loss were equal to or below the reserve, there would be no extra loss of this type. Memory cue: excess loss over reserve is debited as the remaining loss.

The investment has increased from ₹2,25,000 to ₹2,38,000, giving a gain of ₹13,000. A rise in value is not a loss and therefore cannot be charged against the Investment Fluctuation Reserve. The reserve of ₹40,000 is an accumulated reserve created before the reconstitution; when no investment loss exists, it is released and distributed among the old partners in their old profit-sharing ratio. The ₹13,000 increase is treated separately as a gain arising from revaluation or the relevant adjustment process, according to the facts and accounting treatment prescribed. Therefore, option A correctly states both parts. Option B is wrong because the incoming partner did not earn the old reserve. Option C incorrectly treats an accumulated reserve as an outside liability, and Option D reverses the nature of the increase.

Employees’ Provident Fund consists of amounts collected for employees and payable to them; therefore, it is an outside liability of the firm. It does not belong to the partners and cannot be distributed among the old partners as profit or reserve. General reserve and accumulated profits, unlike provident fund, are items associated with the partners’ profit-sharing rights. Exam tip: Amounts payable to employees or other outsiders are liabilities, not distributable profits.

Capital Reserve is also treated as accumulated profit of old partners. Second partner share is ₹33000 × 5/11 = ₹15000.

Capital Reserve is distributed among the old partners in their old profit-sharing ratio. The total ratio is 3 + 5 + 4 = 12, so B’s share = 5/12 × ₹72,000 = ₹30,000. Exam tip: use B’s ratio term, 5, over the total of all ratio terms, 12.

The correct answer is A: accumulated profits belong to the old partners. These profits were earned before the new partner entered. Therefore, they must be transferred to the old partners in their old profit-sharing ratio. The new ratio applies only to profits earned after admission. Option A is correct because it identifies both the time and ownership of the profit. Option B is wrong because the new partner did not contribute to earlier profits. Option C is wrong because accumulated profit is not a cash expense; it is a retained earning or reserve. Option D is wrong because it is not money borrowed from outsiders. Remember: pre-admission profits go to old partners in the old ratio.

The direct answer is option A: reserves are old profits, not compensation for sacrifice. A reserve is created from profits earned before the new partner enters. Since those profits belong to the old partners, the reserve is distributed in the old profit-sharing ratio. The sacrificing ratio has a different purpose: it shows the proportion in which old partners give up their future profit share for the incoming partner, and it is commonly used to distribute goodwill compensation paid by the new partner. Step by step: identify the reserve as a past profit; identify the old partners’ old ratio; distribute the reserve in that old ratio. Do not use the sacrificing ratio unless the question specifically concerns a goodwill adjustment. Option A is correct because it states the nature of reserves. Option B is wrong because sacrificing ratio is not a cash ratio; it is a ratio of sacrifice in future profits. Option C is wrong because reserves are past accumulated profits, not new profits after admission. Option D is wrong because sacrificing ratios are not always equal; they depend on the old and new ratios. Memory cue: reserve means old profit, old ratio; goodwill sacrifice means sacrificing ratio.

Advertisement Suspense is a fictitious or deferred asset. When written off old partners are debited like a loss.

Writing off Preliminary Expenses has effect like accumulated loss. First partner share is ₹18000 × 5/6 = ₹15000.

The direct answer is option A: General Reserve is an accumulated profit. A general reserve is created by setting aside part of the firm’s profit and retaining it in the business. When a new partner is admitted, a reserve created before admission belongs to the old partners, so it is credited to their capital or current accounts in the old profit-sharing ratio. Option A is correct because it represents retained profit. Option B is wrong because a Profit and Loss debit balance means accumulated loss, not profit; it reduces old partners’ capital when distributed. Option C is wrong because Advertisement Suspense is a deferred or fictitious asset-type debit balance, generally treated as an accumulated loss or expense to be written off, not as profit. Option D is wrong because Preliminary Expenses are expenses not yet fully written off and are not accumulated profits. Step by step: ask whether the item arose from profit; General Reserve does; therefore classify it as accumulated profit; then distribute it among old partners in the old ratio. The new partner does not receive a share of this pre-admission reserve. Memory cue: reserve on the credit side usually signals saved profit; debit balances such as P&L debit, suspense, and preliminary expenses are not profits.

If ratio is not given partners are generally assumed equal. In exams always read special instruction first.