A and B share old profits in the ratio of 5:3. The General Reserve is ₹96,000 and the Profit and Loss Account has a debit balance of ₹24,000. On the admission of a new partner, what will be the net effect on A’s Capital Account?

Correct answer: Credit ₹45,000

The General Reserve contributes a credit of ₹96,000, while the debit balance of the Profit and Loss Account reduces the accumulated profit available for distribution. Therefore, the net amount is ₹96,000 − ₹24,000 = ₹72,000. A’s share in the old profit-sharing ratio is \(5/8\), so the net credit to A’s Capital Account is ₹72,000 × \(5/8\) = ₹45,000. ₹72,000 is the total net amount, not A’s individual share. Exam tip: Reserves and accumulated profits or losses relating to the period before admission are adjusted among the old partners in their old profit-sharing ratio.