A new partner is admitted after adding reserves to old partners capital. This is based on which principle?

Correct answer: Old profits belong to old partners

The direct answer is Option A: adding reserves to old partners’ capital is based on the principle that old profits belong to the old partners. A reserve is usually an amount created out of profits earned in earlier periods and retained in the business. A new partner enters only from the date of admission, so that partner did not contribute to earning those earlier profits. Therefore, before admission, the reserve is credited or otherwise adjusted in favour of the old partners in their old profit-sharing ratio. Option A is correct. Option B is wrong because new profits earned after admission may be shared according to the new agreement, but they are not what this reserve represents. Option C is wrong because a reserve is not always a liability; its accounting treatment depends on its nature, and general reserves represent accumulated profits. Option D is wrong because capital is not necessarily equal to cash; it may include non-cash contributions and accounting adjustments. The fair rule is simple: past profit stays with past partners. Exam cue: reserve existing before admission belongs to old partners.