A and B are partners sharing profits in the old ratio of 7:3. The General Reserve is ₹1,00,000 and the Profit and Loss Account has a debit balance of ₹30,000. At the time of admission of a new partner, what will be the net effect on A’s capital account?

Correct answer: Credit ₹49,000

The General Reserve of ₹1,00,000 is an accumulated profit, whereas the ₹30,000 debit balance of the Profit and Loss Account is an accumulated loss. Therefore, the net accumulated profit is ₹1,00,000 − ₹30,000 = ₹70,000. This amount is distributed in the old ratio. A’s share is ₹70,000 × 7/10 = ₹49,000, so A’s capital account is credited by ₹49,000. ₹70,000 is the total net amount, not A’s individual share. Exam tip: First offset accumulated losses against reserves, then distribute the balance in the old profit-sharing ratio.