Reserves

The General Reserve of ₹1,00,000 represents profits retained from periods before D was admitted. A partner is entitled to profits according to the partnership arrangement applicable during the period in which those profits were earned. At that earlier time, only A, B and C were partners, sharing profits in the ratio 2:3:5. Consequently, the reserve is credited or distributed among A, B and C in that old ratio, and D receives no part of it. Option A gives the actual accounting reason. Option D merely repeats the old ratio and does not explain why D is excluded. Option B is false because D will participate in future profits under the new agreement. Option C is false because a reserve is an appropriation of profit, not necessarily a cash expense.

The direct answer is Option A: ₹60,000. General Reserve is an accumulated profit of the old partnership, so it is distributed in the old profit-sharing ratio, 5:3. First add the ratio parts: 5 + 3 = 8. A’s fraction is 5/8. Now calculate: ₹96,000 × 5/8 = ₹12,000 × 5 = ₹60,000. Therefore A’s capital or current account is credited by ₹60,000, while B receives ₹36,000; together they receive ₹96,000. Option A is correct. Option B, ₹36,000, is B’s share because it equals ₹96,000 × 3/8. Option C, ₹48,000, represents one-half and ignores the 5:3 ratio. Option D, ₹96,000, gives the entire reserve to A and ignores B’s entitlement. Memory cue: for ratio 5:3, divide by 8 and give A five parts.

Credit balance is accumulated profit and is distributed in old ratio. B share is ₹45000 × 1/5 = ₹9000.

The Reserve Fund is distributed among the old partners in their old profit-sharing ratio. C’s share is 4/(2+3+4) = 4/9. Therefore, the amount credited to C’s Capital Account is ₹108000 × 4/9 = ₹48000. Option B represents B’s share, 3/9, not C’s. Exam tip: while distributing an existing reserve at admission, use only the old partners’ ratio and exclude the incoming partner.

The correct answer is A: reserves are created from profits earned before admission. A reserve is an accumulated portion of past profit kept in the business. Before the new partner enters, those past profits belong economically to the old partners according to their old profit-sharing ratio. At admission, the reserve is therefore transferred to the old partners’ Capital or Current Accounts in that old ratio. Option A correctly explains the reason. Option B is wrong because a reserve is not the new partner’s capital; the new partner brings capital separately. Option C is wrong because a reserve is not an external loan or outside liability. Option D is wrong because reserve distribution is an accounting transfer and does not always involve receiving cash. The important idea is ownership of past profit: past profit belongs to the old partners, while future profit follows the new agreement.

Reserve has a normal credit balance so it is debited when closed. Old partners are credited as profit holders.

A debit balance in the Profit and Loss Account represents an accumulated loss, which is borne by the old partners in their old profit-sharing ratio. A’s share = ₹36,000 × 7/(7+5) = ₹21,000; therefore, ₹21,000 will be debited to A’s Capital Account. ₹36,000 is the total loss, while ₹15,000 is B’s share. Exam tip: For an accumulated loss, use the old partners’ old profit-sharing ratio.

When there is no claim this reserve is like accumulated profit. The full reserve is shared among old partners in old ratio.

The governing treatment is to use the Workmen Compensation Reserve first against the actual claim. The reserve is ₹95,000 and the claim is ₹35,000, so the claim is fully covered. The unused balance is calculated as ₹95,000 − ₹35,000 = ₹60,000. Since this remaining amount is an accumulated reserve created before the new partner’s admission, it is distributed among the old partners in their old profit-sharing ratio. Therefore, option C is correct. Option A ignores the claim, option B gives only the amount used to settle the claim, and option D incorrectly assumes that no surplus remains after adjustment.

The correct answer is A: ₹13,000. First compare the claim with the reserve: ₹65,000 − ₹52,000 = ₹13,000. The reserve can cover only ₹52,000, so the remaining ₹13,000 is the extra loss. Option A is correct. Option B is only the amount of the reserve, not the uncovered amount. Option C is the full claim, but most of it is already covered by the reserve. Option D is wrong because the claim is greater than the reserve, so some loss remains. This extra loss is debited to the old partners in their old ratio. Exam cue: whenever claim exceeds reserve, subtract reserve from claim.

The claim and reserve are equal so the full reserve is adjusted against claim. Nothing is distributed among old partners.

The direct answer is ₹32,000, option B. Investment Fluctuation Reserve is created to cover a fall in the value of investments. First find the loss: book value ₹2,00,000 minus market value ₹1,82,000 equals ₹18,000. This loss uses ₹18,000 of the reserve. Therefore, the unused reserve is ₹50,000 − ₹18,000 = ₹32,000, and this balance is distributed among the old partners in their old profit-sharing ratio. Option A, ₹18,000, is only the loss amount, not the remaining reserve. Option B, ₹32,000, is correct because it is the balance after adjustment. Option C, ₹50,000, ignores the investment loss completely. Option D, zero, would be correct only if the loss equalled or exceeded the reserve. Exam cue: subtract the investment loss from the reserve before distributing the balance.

The correct answer is A: ₹13,000. The investment loss is ₹48,000 and the Investment Fluctuation Reserve is ₹35,000. The uncovered part is calculated as ₹48,000 − ₹35,000 = ₹13,000. Option A is correct because this is the loss remaining after using the reserve. Option B is only the reserve amount. Option C is the total loss, not the extra loss. Option D is wrong because the reserve is insufficient. The extra loss is debited among the old partners in the old ratio because it relates to the period before reconstitution. Remember: total loss minus available reserve equals additional loss.

Increase in investments is gain and reserve also belongs to old partners. Both go to old partners in old ratio.

Employees’ Provident Fund represents amounts collected or contributed for employees that the firm must pay to the employees or the relevant fund authority. Therefore, it is an outside liability, not accumulated profit or a reserve distributable among partners. In contrast, a general reserve is distributed among the old partners in their profit-sharing ratio. Exam tip: An amount payable to employees, the government, or another external party is treated as a liability, not as a reserve.

Capital Reserve is treated as accumulated profit of old partners. Second partner share is ₹44000 × 3/11 = ₹12000.

The total old profit-sharing ratio is \(5+2+1=8\), and B is entitled to 2 parts. Hence, B’s share of the Capital Reserve is \(₹64,000 \times \frac{2}{8}=₹16,000\). ₹40,000 is A’s share and ₹8,000 is C’s share, so those options are incorrect. Exam tip: Multiply the reserve by the concerned partner’s ratio divided by the total ratio.

The governing principle is that profit belongs to the partners who earned it during the relevant period. Accumulated profits and reserves arise from earnings made before the admission of the new partner. The incoming partner was not a member of the firm during that period and did not contribute to generating those profits. Consequently, the amount must be transferred or distributed among the old partners in their old ratio, not in the new ratio. Option A correctly states the reason. Option B is false because accumulated profits are not always losses, option C confuses partners’ funds with external liabilities, and option D is incorrect because an accumulated profit is an accounting balance and need not be held as separate cash in the bank.

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

Writing off Preliminary Expenses works like accumulated loss. First partner share is ₹24000 × 7/8 = ₹21000.

Old reserve is profit before admission. If not distributed the new partner may later share old profit.

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 accumulated profit = ₹66,000 + ₹33,000 = ₹99,000. A’s share = 6/11, so the amount credited to A = ₹99,000 × 6/11 = ₹54,000. ₹49,500 represents half of the total and ignores the 6:5 ratio. Exam tip: Apply the old profit-sharing ratio when distributing reserves or accumulated profits at the time of admission.

The reserve of ₹54,000 represents accumulated profit, whereas the debit balance of ₹18,000 in the Profit and Loss Account represents accumulated loss. Therefore, the net effect is ₹54,000 − ₹18,000 = ₹36,000 net accumulated profit. Hence, option A is correct. Exam tip: add credit balances as profits and deduct debit balances representing losses.

The General Reserve is credited to the old partners, while Preliminary Expenses are written off by debiting the partners. Thus, the net adjustment is ₹45,000 − ₹15,000 = ₹30,000. A’s share is 2/3, so A’s net credit is ₹30,000 × 2/3 = ₹20,000. ₹30,000 is the total net adjustment, not A’s individual share. Exam tip: Calculate the overall net adjustment first, then distribute it in the old profit-sharing ratio.

The debit balance of the Profit and Loss Account represents a loss, which is distributed among the partners in their old profit-sharing ratio. The total ratio is 3+1+2=6, and C’s share is 2. Therefore, the amount debited to C’s account is ₹48,000 × 2/6 = ₹16,000. ₹8,000 represents one ratio unit, whereas C is entitled to two units. Exam tip: Distribute a debit balance in the partners’ old profit-sharing ratio.