A and B share profits in the ratio of 7:3. The General Reserve is ₹50,000 and the Profit and Loss Account has a credit balance of ₹20,000. When these amounts are distributed among the old partners, what total amount will be credited to B?

Correct answer: ₹21,000

The General Reserve and the credit balance of the Profit and Loss Account are both accumulated profits. Thus, the total amount is ₹50,000 + ₹20,000 = ₹70,000. B’s share under the old profit-sharing ratio is \(3/10\), so the amount credited to B is \(₹70,000 \times 3/10 = ₹21,000\). ₹35,000 is half of the total, but B’s share is 3/10, not one-half. Exam tip: Reserves and accumulated profits are distributed among old partners in their old profit-sharing ratio.