Why are reserves distributed in old profit sharing ratio at admission?

Correct answer: Because they are created from profit before admission

The correct answer is A: reserves are created from profits earned before admission. A reserve is an accumulated portion of past profit kept in the business. Before the new partner enters, those past profits belong economically to the old partners according to their old profit-sharing ratio. At admission, the reserve is therefore transferred to the old partners’ Capital or Current Accounts in that old ratio. Option A correctly explains the reason. Option B is wrong because a reserve is not the new partner’s capital; the new partner brings capital separately. Option C is wrong because a reserve is not an external loan or outside liability. Option D is wrong because reserve distribution is an accounting transfer and does not always involve receiving cash. The important idea is ownership of past profit: past profit belongs to the old partners, while future profit follows the new agreement.