Reserves

After adjusting the liability, the distributable reserve is ₹90,000 − ₹18,000 = ₹72,000. The total of the old profit-sharing ratio 4:3:2 is 9, so B’s share is 3/9. Therefore, the amount credited to B’s account is ₹72,000 × 3/9 = ₹24,000. ₹30,000 is incorrect because it applies the ratio to the entire reserve without deducting the liability. Exam tip: Deduct the related liability from the reserve first, then distribute the balance in the old profit-sharing ratio.

A reserve represents profit accumulated before the admission of the new partner. Therefore, it belongs only to the existing partners and must be transferred to their capital or current accounts in their old profit-sharing ratio. The new ratio is relevant only for profits earned after admission. Hence, distributing the reserve in the new ratio is the common mistake and option A is correct. Crediting old partners is normally the correct treatment, while debiting the Reserve Account is the usual journal entry and is not itself the conceptual mistake. An accumulated loss, in contrast, is debited to old partners in the old ratio.

The governing concept is that accumulated profits and accumulated losses existing before reconstitution are adjusted among the old partners in their old profit-sharing ratio. The Reserve Fund is an accumulated profit of ₹75,000, while the debit balance of Profit and Loss is an accumulated loss of ₹30,000. Therefore, the net accumulated profit is ₹75,000 − ₹30,000 = ₹45,000. The old ratio 8:7 contains 15 total parts, so the first partner’s share is 8/15. His net credit is ₹45,000 × 8/15 = ₹24,000. Hence option A is correct. ₹45,000 is the total net amount, not the first partner’s share; ₹40,000 uses no valid calculation, and a debit would contradict the net profit position.

The governing rule is that the net balance of accumulated profit and accumulated loss is transferred to the old partners in their old ratio. Here, accumulated loss of ₹81,000 exceeds accumulated profit of ₹54,000. Thus, the net accumulated loss is ₹81,000 − ₹54,000 = ₹27,000. It must be debited to the partners. The ratio 4:5 has 9 total parts, and the second partner’s share is 5/9. Therefore, his debit is ₹27,000 × 5/9 = ₹15,000. Option A is correct. A credit would be possible only when accumulated profit exceeds accumulated loss. ₹27,000 is the total net loss, not the second partner’s portion, and ₹45,000 does not follow from either the net amount or the stated ratio.

A Workmen Compensation Reserve is maintained to meet a possible claim relating to employees. On admission, the reserve is compared with the actual claim. Here, the reserve is ₹48,000 and the claim is also ₹48,000, so the entire reserve is required to settle the claim. The amount available for distribution to the old partners is therefore ₹48,000 − ₹48,000 = zero. Option A is correct. The full ₹48,000 cannot be distributed because it is completely absorbed by the liability. ₹24,000 would be an unsupported partial amount, and ₹96,000 incorrectly adds the reserve and claim instead of comparing them.

The governing concept is that accumulated profits belong to the partners who earned them before reconstitution, so they must be distributed in the old profit-sharing ratio. The General Reserve and the Profit and Loss credit balance together equal ₹84,000 + ₹36,000 = ₹1,20,000. In the correct old ratio 7:5, A’s entitlement is 7/12 × ₹1,20,000 = ₹70,000. However, equal distribution gave A only ₹60,000, because each partner received half of ₹1,20,000. Therefore, A received ₹70,000 − ₹60,000 = ₹10,000 less. Option A is correct. Option B reverses the direction, option C states A’s correct entitlement rather than the shortfall, and option D ignores the unequal ratio.

The governing concept is net adjustment of accumulated items in the old profit-sharing ratio. General Reserve represents accumulated profit of ₹1,20,000, whereas the Profit and Loss debit balance represents accumulated loss of ₹50,000. The net amount available for credit is therefore ₹1,20,000 − ₹50,000 = ₹70,000. The old ratio 2:5:3 totals 10 parts, and the second partner is entitled to 5/10 of the net amount. His credit is ₹70,000 × 5/10 = ₹35,000. Thus option A is correct. ₹70,000 is the total net accumulated profit, not the second partner’s share. ₹60,000 and ₹25,000 cannot be obtained by applying the stated net amount and ratio correctly.

The governing principle is that a General Reserve is an accumulated profit and must be distributed in the old profit-sharing ratio, not in the partners’ capital ratio. Under the correct old ratio 3:1, the first partner should receive 3/4 × ₹72,000 = ₹54,000. The incorrect capital ratio 5:4 contains 9 parts, so the amount actually given to him was 5/9 × ₹72,000 = ₹40,000. Comparing the two amounts, his shortfall is ₹54,000 − ₹40,000 = ₹14,000. Therefore, option A is correct. Option B reverses the result, option C gives the correct entitlement rather than the difference, and option D ignores the distinct ratios.

The governing rule is that an accumulated Profit and Loss debit balance, being an old loss, must be written off among the old partners in their old profit-sharing ratio. In the correct old ratio 3:1, the second partner’s share is 1/4 × ₹72,000 = ₹18,000 debit. Because the capital ratio 5:4 was used incorrectly, his recorded debit became 4/9 × ₹72,000 = ₹32,000. The excess debit is therefore ₹32,000 − ₹18,000 = ₹14,000. Option A is correct. The effect cannot be a credit because the balance is a loss; ₹18,000 is the correct debit, not the error; and there is a difference because the two ratios are unequal.

The governing principle is that a reserve is created from profits earned in an earlier accounting period. At the time of admission, those earlier profits belong to the partners who were entitled to them when they were earned. Therefore, the reserve is transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. Option A correctly states this principle. The existence of cash does not give the incoming partner a right to past profits, and showing a reserve on the liabilities side does not make it an outside liability. The new ratio applies to future profits after admission, not to past accumulated reserves.

The governing concept is that accumulated profits must be distributed in the old profit-sharing ratio because they arose before the reconstitution. The total accumulated profit is ₹1,05,000 + ₹45,000 = ₹1,50,000. The old ratio 9:6 totals 15 parts, so A’s correct entitlement is 9/15 × ₹1,50,000 = ₹90,000. However, the equal distribution gave A ₹1,50,000 ÷ 2 = ₹75,000. Thus, A received ₹90,000 − ₹75,000 = ₹15,000 less than the amount due. Hence option A is correct. The result is a shortfall, not an excess; ₹90,000 is A’s correct share, not the difference, and equal distribution is inappropriate for the stated old ratio.

The governing concept is that an accumulated Profit and Loss debit balance is an old loss and must be written off in the old profit-sharing ratio. In the correct old ratio 4:1, the second partner’s share is 1/5, so his proper debit is ₹90,000 × 1/5 = ₹18,000. The incorrect capital ratio 7:8 totals 15 parts, giving him a debit of ₹90,000 × 8/15 = ₹48,000. Therefore, the excess debit is ₹48,000 − ₹18,000 = ₹30,000. Option A is correct. The effect is not a credit, because the balance represents a loss; ₹18,000 is the correct debit rather than the additional error, and ₹30,000 less would have the wrong direction.

Reserves representing accumulated profits earned before the admission of C belong to the old partners, A and B, in their old profit-sharing ratio. The two reserves together amount to ₹78,000 + ₹52,000 = ₹1,30,000. A’s old share is 8/13, so A’s credit is ₹1,30,000 × 8/13 = ₹80,000. The new partner does not receive a share of these accumulated reserves merely because he or she is admitted. Option B uses only part of the information, option C is the entire combined amount rather than A’s share, and option D applies no valid ratio. Therefore, option A is correct.

The reserve is not distributed in full because an actual tax liability has been identified against it. First, the liability of ₹40,000 is deducted from the Tax Adjustment Reserve of ₹64,000. The balance available for distribution is therefore ₹64,000 − ₹40,000 = ₹24,000. This remaining amount is an accumulated benefit of the old partners and is shared in their old ratio of 5:3. A’s share is ₹24,000 × 5/8 = ₹15,000. Option B is the distributable balance before applying the ratio, while options C and D ignore the required adjustment. Thus, the correct credit to A is ₹15,000, making option A correct.