If General Reserve is distributed in capital ratio while profit ratio is different why is it wrong?

Correct answer: Reserve is made from profit so profit ratio applies

The direct answer is Option A: A General Reserve is created from profit, so the old profit-sharing ratio applies. A General Reserve is not formed from partners’ capital contributions; it is accumulated profit retained in the business. On admission, the reserve belongs to the old partners and must normally be distributed according to the old profit-sharing ratio, because that ratio shows how old profits were shared. Option A is correct. Option B is wrong because the reserve is not created from capital, so capital ratio is not the normal basis. Option C is wrong because the new partner joined later and did not earn the past reserve. Option D is wrong because the reserve is not an outside liability payable to a creditor; it is an internal accumulated profit. If capital and profit ratios differ, using the capital ratio would give an unfair amount. Exam cue: reserve comes from profit, therefore use the old profit ratio.