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Class 12AccountancyReconstitution - Admission of a PartnerReservesHard
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A firm's Contingency Reserve is ₹46,000, whereas the actual liability is found to be ₹58,000. At the time of admission of a new partner, what is the correct accounting treatment of this excess liability?

Answer and explanation

Correct answer: Debit ₹12,000 to Revaluation Account

The actual liability is ₹58,000, while the available Contingency Reserve is only ₹46,000. Therefore, the shortfall of ₹12,000 (₹58,000 − ₹46,000) is an additional loss to the firm and is debited to the Revaluation Account. It is not directly credited to the old partners or debited to the new partner’s account. Exam tip: Subtract the reserve available from the actual liability; the balance is treated as revaluation loss.

Related tags

Contingency ReserveExcess LiabilityRevaluation LossAdmission Of PartnerPartnership AccountingReservesReconstitution Admission Of A PartnerAccountancy
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10 more MCQs
  1. 1At the time of admission of a new partner to whom is general reserve given?
  2. 2At the time of admission how is credit balance of Profit and Loss Account treated?
  3. 3At the time of admission what does debit balance of Profit and Loss Account show?
  4. 4A and B share profits in the old ratio of 3:2. At the time of admission of a new partner, the general reserve is ₹50,000. How much will A receive from the general reserve?
  5. 5X and Y are partners sharing profits in the old ratio of 4:1. The firm's reserve fund is ₹25,000. On reconstitution of the partnership, what share of the reserve fund will Y receive?
  6. 6Why does the new partner not receive a share of the old General Reserve?
  7. 7Which is the correct journal entry for distributing general reserve?
  8. 8Which entry is made for writing off debit balance of Profit and Loss Account?
  9. 9Profit and Loss Account has credit balance ₹30000. A and B share in 2:1. How much will be credited to B?
  10. 10A firm's Profit and Loss Account has a debit balance of ₹18,000. Partners A and B share profits and losses in the old ratio of 5:4. What amount will be debited to A's Capital Account?
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