Why is it incorrect to distribute an old reserve in the new profit-sharing ratio when a partner is admitted?

Correct answer: Because the old reserve was created from profits earned before the new partner’s admission

An old reserve is created from profits earned before the new partner’s admission, so it belongs only to the old partners. It is distributed among the old partners in their old profit-sharing ratio, not in the new ratio. Exam tip: profits accumulated before admission are credited to the old partners in the old ratio.