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Class 12AccountancyReconstitution - Admission of a PartnerReservesExpert
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The old partners share profits and losses in the ratio of 7:3. The Profit and Loss Account has a credit balance of ₹50,000, and the Advertisement Suspense Account has a balance of ₹80,000. On admission of a new partner, what will be the net effect on the first partner’s Capital/Current Account?

Answer and explanation

Correct answer: ₹21,000 debit

The ₹50,000 credit balance of the Profit and Loss Account is distributed among the old partners in the ratio of 7:3, giving the first partner a credit of ₹50,000 × 7/10 = ₹35,000. The ₹80,000 debit balance of Advertisement Suspense is written off, resulting in a debit of ₹80,000 × 7/10 = ₹56,000 for the first partner. Therefore, the net effect is ₹56,000 debit − ₹35,000 credit = ₹21,000 debit. Exam tip: a reserve creates a credit effect, whereas writing off an accumulated loss or fictitious asset creates a debit effect.

Related tags

Partner AdmissionReservesAdvertisement SuspenseProfit And Loss AccountOld Profit Sharing RatioReconstitution Admission Of A PartnerAccountancyClass 12 Mcq
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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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