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Class 12AccountancyReconstitution - Admission of a PartnerReservesMedium
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A and B share profits in the ratio of 5:1. The General Reserve is ₹48,000. If the entire amount is distributed in the new profit-sharing ratio when a new partner is admitted, what is the main error?

Answer and explanation

Correct answer: Distributing accumulated past profits in the wrong ratio

The General Reserve represents profits accumulated in previous years. Therefore, before admitting the new partner, it should be distributed only among the old partners in their old profit-sharing ratio of 5:1. The correct distribution of ₹48,000 is ₹40,000 to A and ₹8,000 to B. The new ratio applies to future profits after admission, not to past accumulated profits. Exam tip: Reserves and other accumulated profits are generally adjusted among the old partners in the old ratio.

Related tags

AccountancyAdmission Of PartnerGeneral ReserveOld RatioNew RatioAccumulated ProfitsReservesReconstitution Admission Of A Partner
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10 more MCQs
  1. 1At the time of admission of a new partner to whom is general reserve given?
  2. 2At the time of admission how is credit balance of Profit and Loss Account treated?
  3. 3At the time of admission what does debit balance of Profit and Loss Account show?
  4. 4A and B share profits in the old ratio of 3:2. At the time of admission of a new partner, the general reserve is ₹50,000. How much will A receive from the general reserve?
  5. 5X and Y are partners sharing profits in the old ratio of 4:1. The firm's reserve fund is ₹25,000. On reconstitution of the partnership, what share of the reserve fund will Y receive?
  6. 6Why does the new partner not receive a share of the old General Reserve?
  7. 7Which is the correct journal entry for distributing general reserve?
  8. 8Which entry is made for writing off debit balance of Profit and Loss Account?
  9. 9Profit and Loss Account has credit balance ₹30000. A and B share in 2:1. How much will be credited to B?
  10. 10A firm's Profit and Loss Account has a debit balance of ₹18,000. Partners A and B share profits and losses in the old ratio of 5:4. What amount will be debited to A's Capital Account?
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