A and B share profits in the old ratio of 2:3. The General Reserve is ₹1,25,000, and the Profit and Loss Account has a debit balance of ₹35,000. On the admission of a new partner, what will be the net effect on B’s capital account?

Correct answer: Credit ₹54,000

The General Reserve represents accumulated profit and is credited to the old partners’ capital accounts in their old profit-sharing ratio. The debit balance of the Profit and Loss Account is adjusted against this reserve: ₹1,25,000 − ₹35,000 = ₹90,000. B’s share is 3/5, so the net credit is ₹90,000 × 3/5 = ₹54,000. Exam tip: deduct the debit balance before applying the old ratio; applying the ratio directly to ₹1,25,000 gives an incorrect result.