At the time of admission of a new partner, what does the old firm's general reserve represent?

Correct answer: Accumulated undistributed profits of the old partners

General reserve is created from profits of earlier years that have not been distributed to the partners. On the admission of a new partner, it belongs to the old partners and is generally transferred to their capital accounts in the old profit-sharing ratio. Therefore, option A is correct; it is neither the new partner’s capital nor a cash loss of the firm. Exam tip: Existing reserves at admission are distributed among the old partners in the old ratio.