Reserves

The General Reserve is distributed among the old partners in their old profit-sharing ratio. The total ratio is 7+2+3=12, so the second partner’s share is 2/12. Therefore, the amount credited is ₹96,000 × 2/12 = ₹16,000. ₹56,000 belongs to the first partner and ₹24,000 to the third partner. Exam tip: For reserves at admission, use the old partners’ old ratio, not the new partner’s ratio.

Correct shares are ₹56000 and ₹16000 but equal sharing gives ₹36000 each. The partner with 7 parts loses ₹20000.

If there is no related claim it is like a free reserve. It is shared among old partners in old ratio.

The expected liability related to the Contingency Reserve must be deducted first. Therefore, the amount distributed among the old partners is ₹82,000 − ₹27,000 = ₹55,000. This amount is distributed in the old partners’ old profit-sharing ratio. Exam tip: Always deduct the known liability before distributing a reserve.

Additional loss = Actual liability − Contingency Reserve = ₹59,000 − ₹46,000 = ₹13,000. The actual liability exceeds the reserve by ₹13,000, so this difference is treated as a loss and debited to the old partners’ capital or current accounts. Exam tip: When the actual liability exceeds the reserve, the difference is a loss; when the reserve exceeds the liability, the difference is a gain.

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

The General Reserve is credited by ₹84,000, while the debit balance of the Advertisement Suspense Account is adjusted by debiting ₹28,000. Therefore, the total net amount is ₹84,000 − ₹28,000 = ₹56,000. B’s share under the old ratio is 2/7, so the net credit to B’s Capital Account is ₹56,000 × 2/7 = ₹16,000. ₹56,000 is the total net adjustment, not B’s individual share. Exam tip: Credit reserves and debit accumulated losses or debit-balance items before distributing the net amount in the old profit-sharing ratio.

The General Reserve and Capital Reserve are distributed among the old partners in their old profit-sharing ratio. Total reserves = ₹49,000 + ₹21,000 = ₹70,000. The first partner’s share is \(\frac{4}{7}\), so the amount credited to the Capital Account is ₹70,000 × \(\frac{4}{7}\) = ₹40,000. ₹70,000 represents the total amount for both partners, not the first partner’s individual share. Exam tip: First add all reserves to be distributed, then apply the concerned old partner’s fraction of the profit-sharing ratio.

If there is no bad debt adjustment the reserve is shared like old profit. A share is ₹25000 × 3/5 = ₹15000.

General Reserve is an accumulated profit appropriated from the firm’s earnings before the admission of D. The governing partnership principle is that a partner is entitled to profits only for the period in which that partner was a member and shared the risks and efforts of the business. D was not a partner when the reserve was created, so the reserve belongs to A, B and C. It should be credited to them in their old ratio of 1:3:2. Option A gives the correct reason. Option D states a fact but does not explain D’s exclusion, while options B and C are conceptually false. The stated amount and ratio do not change this rule.

When there is no liability Contingency Reserve is shared like old profit. B share is ₹75000 × 4/15 = ₹20000.

Additional bad debts are first adjusted against the reserve. The remaining ₹30000 is shared among old partners in old ratio.

Actual bad debts exceed the reserve by ₹7000. This extra loss is debited to old partners in old ratio.

The governing concept is the adjustment of accumulated profit after setting off an accumulated loss. The General Reserve of ₹77,000 is a credit item, while the Profit and Loss debit balance of ₹28,000 is an accumulated loss that must be deducted. Net accumulated profit is therefore ₹77,000 − ₹28,000 = ₹49,000. The old partners share this net amount in their old ratio of 3:4. The second partner’s share is 4/7 × ₹49,000 = ₹28,000. Thus, option B is correct. Option D is the total net profit before division, option C does not follow the 4:7 calculation, and option A represents the first partner’s share, 3/7 of ₹49,000.

The Capital Reserve is credited to the old partners’ capital accounts in their old profit-sharing ratio. In contrast, the debit balance of the Advertisement Suspense Account is written off in the same ratio. Hence, the net amount to be distributed is ₹45,000 − ₹15,000 = ₹30,000. Partner A’s share is ₹30,000 × 8/15 = ₹16,000 credit. Option B represents the entire net amount, not A’s share. Exam tip: Adjust reserves and accumulated losses or fictitious assets in the old profit-sharing ratio.

General Reserve is profit of the old firm. If it is not closed the new partner may appear linked with that old profit.

Reserve normally has credit balance. To close the account the opposite side that is debit is used.

Accumulated loss has debit balance so it is credited to close it. Old partners capital accounts are debited.

The governing concept is the treatment of accumulated profits and fictitious assets at the time of reconstitution. The Profit and Loss credit balance represents accumulated profit of ₹60,000, whereas Preliminary Expenses are an unprovided fictitious asset of ₹20,000 and must be written off. Therefore, the net amount available for distribution is ₹60,000 − ₹20,000 = ₹40,000. The old partners’ ratio is 1:1:2, whose total is 4 parts. The third partner has 2 parts, so the credit due is ₹40,000 × 2/4 = ₹20,000. Thus option B is correct. ₹10,000 represents only one-fourth of the net amount, ₹30,000 does not follow the ratio, and ₹40,000 is the total net balance rather than the third partner’s share.

When there is no investment loss the full reserve remains. It is distributed among old partners in old ratio.

The governing concept is that a specific reserve cannot be distributed without first recognising the liability for which it was created. The Special Reserve has a credit balance of ₹64,000, but the related liability is ₹49,000. The liability must be adjusted against the reserve before any balance is credited to the old partners. The distributable surplus is therefore ₹64,000 − ₹49,000 = ₹15,000. This remaining amount represents the unused portion of the reserve and is transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. Option B is only the liability amount, option C ignores the liability, and option D incorrectly assumes that the entire reserve is consumed. Hence option A is the only correct answer.

Both reserves relate to old profits or old rights. Therefore they are usually distributed among old partners in old ratio.

The General Reserve represents profits accumulated in previous years. Therefore, before admitting the new partner, it should be distributed only among the old partners in their old profit-sharing ratio of 5:1. The correct distribution of ₹48,000 is ₹40,000 to A and ₹8,000 to B. The new ratio applies to future profits after admission, not to past accumulated profits. Exam tip: Reserves and other accumulated profits are generally adjusted among the old partners in the old ratio.

Both items are old losses or items to be written off. Total accumulated loss is ₹25000 + ₹15000 = ₹40000.

Reserve is created from profit so old partners capital increases on distribution. Remember the credit effect in exams.