A and B share profits in the ratio of 7:3. At the time of admission of a new partner, there is a reserve of ₹1,10,000 and a debit balance of ₹40,000 in the Profit and Loss Account. If the net balance after adjustment is distributed in the old ratio, what amount will be credited to A’s account?

Correct answer: ₹49,000

The reserve has a credit balance of ₹1,10,000, while the debit balance of the Profit and Loss Account must be deducted from it. Thus, the net amount is ₹1,10,000 − ₹40,000 = ₹70,000. A’s share is ₹70,000 × 7/10 = ₹49,000. ₹70,000 is the total net amount, not A’s individual share. Exam tip: Deduct any debit balance before distributing the net reserve among the old partners.