If accumulated profits or general reserve are not adjusted in the old partners’ accounts before the admission of a new partner, what problem will arise?

Correct answer: The new partner may receive an unfair share of profits earned before admission

Accumulated profits and general reserve are earned before the new partner is admitted, so they belong only to the old partners. They should be transferred to the old partners’ capital or current accounts in their old profit-sharing ratio. If this adjustment is not made, the new partner may receive an unfair share of profits earned before admission. Exam tip: On admission, distribute old profits and reserves among the old partners in their old ratio.