Reserves

Correct answer: A. Zero

General Reserve Account is debited and closed. Therefore its balance becomes zero in the balance sheet.

Correct answer: A. Share in old profit

Reserve is the balance of old profit. If not distributed the new partner may later share that old profit.

Correct answer: A. ₹42,000

The General Reserve and the credit balance of the Profit and Loss Account are distributed among the old partners in their old profit-sharing ratio. Total amount = ₹48,000 + ₹24,000 = ₹72,000. A’s share = 7/12, so the amount credited to A = ₹72,000 × 7/12 = ₹42,000. ₹30,000 is B’s 5/12 share, not A’s. Exam tip: On admission, distribute accumulated profits and reserves in the old ratio unless the question specifies otherwise.

Correct answer: A. ₹30,000 accumulated profit

The reserve of ₹45,000 represents accumulated profit, whereas the ₹15,000 debit balance of the Profit and Loss Account represents accumulated loss. Therefore, the net effect is ₹45,000 − ₹15,000 = ₹30,000 accumulated profit. The 2:3 ratio would be used to distribute this net amount between the partners, but it is not needed to calculate the total net effect. Exam tip: Subtract the debit balance from the reserve to determine the net accumulated profit or loss.

Correct answer: A. ₹12,000

The General Reserve is credited to the old partners, while Preliminary Expenses are debited to them. Thus, the total net adjustment is ₹28,000 − ₹12,000 = ₹16,000. A’s share is 3/4, so A’s net credit = ₹16,000 × 3/4 = ₹12,000. ₹16,000 is the total net adjustment, not A’s individual share. Exam tip: add reserves and accumulated profits, deduct expenses to be written off, and distribute the net amount in the old profit-sharing ratio.

Correct answer: B. ₹12,000

The total ratio is 4 + 2 + 3 = 9, and B’s share is 2/9. Therefore, the amount debited to B’s account is ₹54,000 × 2/9 = ₹12,000. A debit balance in the Profit and Loss Account represents a loss, which is distributed in the old profit-sharing ratio. Exam tip: For a debit balance, multiply the loss by the concerned partner’s fraction of the old ratio.

Correct answer: A. Old partners current accounts

Under fixed capital method capital accounts are kept fixed. Therefore such adjustments are made through current accounts.

Correct answer: A. Old partners capital accounts

Under fluctuating capital method adjustments are made directly in capital accounts. Accumulated loss is debited to old partners capital accounts.

Correct answer: C. ₹9000

The General Reserve is distributed among the old partners in their old profit-sharing ratio. The third partner’s share is 1/(6+2+1) = 1/9. Therefore, the amount credited is ₹81000 × 1/9 = ₹9000. ₹18000 would be the share of the second partner. Exam tip: For distributing an existing reserve, use the old partners’ ratio, not the incoming partner’s ratio.

Correct answer: A. Partner with 5 parts

Correct shares are ₹40000 and ₹16000 but equal sharing gives ₹28000 each. The partner with 5 parts loses ₹12000.

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

If there is no claim a free reserve is like old accumulated profit. It is shared among old partners.

Correct answer: C. ₹४०,०००

The expected liability related to the Contingency Reserve is deducted first. Therefore, the balance distributed among the old partners is ₹58,000 − ₹18,000 = ₹40,000. ₹58,000 is the total reserve, whereas ₹18,000 must be retained for the liability. Exam tip: Always deduct the related expected liability before distributing a reserve.

Correct answer: A. ₹6,000

The actual liability is ₹31,000, while the Contingency Reserve available is ₹25,000. Therefore, the liability exceeds the reserve by ₹31,000 − ₹25,000 = ₹6,000. This additional loss is debited to the Revaluation Account and distributed among the old partners in their profit-sharing ratio through their capital or current accounts. Exam tip: when the actual liability exceeds the reserve, the excess is treated as an additional loss.

Correct answer: A. Claim is adjusted against reserve

A special reserve is first adjusted against the claim for that purpose. The balance is shared among old partners.

Correct answer: A. Accumulated profit

Credit balance of Profit and Loss Account is retained profit. It is shared among old partners in old ratio.

Correct answer: B. Accumulated loss

Profit and Loss debit balance is loss of past period. It is debited to old partners in old ratio.

Correct answer: A. No direct effect

The direct answer is Option A: No direct effect on the new partner’s capital. Accumulated profits, such as a reserve or a credit balance of Profit and Loss Account, were earned before the new partner joined. Therefore, they belong to the old partners. At admission, the amount is transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. The new partner neither receives this past profit nor bears its adjustment. Option A is correct because the new partner’s capital is not changed directly by distributing old reserves. Option B is wrong because capital does not always increase; the new partner’s capital increases only when the new partner brings capital. Option C is wrong because it does not always decrease. Option D is clearly wrong because no capital automatically becomes zero. Exam cue: profits earned before admission belong to old partners, not the incoming partner.

Correct answer: A. The old partners’ capital decreases

Accumulated losses belong to the period before the new partner’s admission. They are debited to the old partners’ capital or current accounts in their old profit-sharing ratio, thereby reducing their capital. Exam tip: accumulated profits increase partners’ capital, whereas accumulated losses decrease it.

Correct answer: A. Reserve is made from old profit

Reserve is created from earnings of old partners. Therefore it is distributed in old profit ratio.

Correct answer: A. Credit balance

Reserve is created out of profit so its normal balance is credit. While closing the reserve is debited.

Correct answer: A. Find the net effect and adjust it among the old partners in their old ratio

Accumulated profit and accumulated loss relate to the period before admission, so their effect belongs only to the old partners. As a quick method, subtract the accumulated loss from the accumulated profit to determine the net effect, then distribute or adjust it among the old partners in their old profit-sharing ratio. The new partner receives no share in these past items. Exam tip: a net profit is credited to the old partners’ capital accounts, while a net loss is debited to them.

Correct answer: B. ₹21,000

The General Reserve is credited to the old partners in their old ratio, so B’s credit is ₹70,000 × 3/7 = ₹30,000. The Advertisement Suspense Account represents an accumulated loss and is debited to the old partners in the same ratio, so B’s debit is ₹21,000 × 3/7 = ₹9,000. Therefore, B’s net credit is ₹30,000 − ₹9,000 = ₹21,000. Exam tip: calculate the credit for reserves and the debit for accumulated losses separately before finding the net amount.

Correct answer: A. ₹30,000

Both reserves are distributed among the old partners in their old profit-sharing ratio. Total reserves = ₹50,000 + ₹25,000 = ₹75,000. The second partner’s share is 2/5, so the amount credited is ₹75,000 × 2/5 = ₹30,000. ₹25,000 represents only the Capital Reserve, not the combined amount asked for. Exam tip: On admission, accumulated profits and reserves are generally distributed among old partners in their old ratio.

Correct answer: A. Because it is internal accumulation of profit

General Reserve is created from firm profits and is owners claim. Therefore it is not payable to outside creditors.

Correct answer: A. ₹18000

If there is no bad debt adjustment the reserve is shared like old profit. A share is ₹26000 × 9/13 = ₹18000.