At the time of admission of a partner, if the General Reserve is ₹80,000 and the Profit and Loss Account has a debit balance of ₹95,000, what conclusion should be drawn after adjustment?

Correct answer: Net accumulated loss of ₹15,000

The General Reserve of ₹80,000 represents accumulated profit, whereas the ₹95,000 debit balance of the Profit and Loss Account represents accumulated loss. After adjustment, ₹95,000 − ₹80,000 = ₹15,000 remains as net accumulated loss. This amount is debited to the old partners’ capital or current accounts in their old profit-sharing ratio; the incoming partner is not entitled to it. Exam tip: Set off a credit-balance reserve against the debit balance of accumulated loss to find the net amount.