A, B and C are old partners sharing profits in the ratio of 4:3:2. The General Reserve is ₹1,35,000 and the Profit and Loss Account has a debit balance of ₹45,000. On the admission of a new partner, what will be the net effect on C’s capital account?

Correct answer: ₹20,000 credit

The General Reserve of ₹1,35,000 is credited to the old partners, whereas the debit balance of the Profit and Loss Account of ₹45,000 is debited to them. Therefore, the net amount is ₹1,35,000 − ₹45,000 = ₹90,000. C’s share in the old ratio is \(2/9 \times ₹90,000 = ₹20,000\), so C’s capital account receives a net credit of ₹20,000. Option B represents C’s share of the reserve alone and ignores the debit balance. Exam tip: At admission, credit reserves and accumulated profits and debit accumulated losses in the old profit-sharing ratio.