What is the basic accounting basis for distributing reserves when a new partner is admitted?

Correct answer: They were earned in the old period, so old partners are entitled to them

A reserve is generally an accumulation of profits earned in earlier accounting periods. Since those profits arose before the admission of the new partner, the economic right to them belongs to the existing partners. Accordingly, the reserve is transferred or credited to the old partners in their old profit-sharing ratio, unless the partnership agreement or a specific adjustment requires another treatment. The presence of cash is not the reason for entitlement, because a reserve is an appropriation of profit rather than an outside liability. Its balance-sheet location also does not make it an external debt, and the new ratio applies to future profits, not automatically to past reserves. Hence option A is correct.