In the calculation of a deceased partner's share, accumulated profits and general reserve are classified under which category?

Correct answer: Profit nature items

The direct answer is A: profit-nature items. Accumulated profits and the general reserve are amounts earned or created from profits in earlier years. They are not new assets by themselves; they represent undistributed profit belonging to the partners. During the calculation of a deceased partner’s amount, such profits are distributed among the partners in their profit-sharing ratio, so the deceased partner receives his share. Option A is correct because both items arise from profit. Option B is less correct: although a reserve may appear on the liabilities side of a balance sheet as an amount due to owners, the accounting classification asked here is their profit nature, not an outside liability. Option C is wrong because these amounts are not costs incurred to earn revenue. Option D is wrong because an asset is a resource owned by the firm, whereas reserve and accumulated profit are claims of partners. The exam cue is: old undistributed profit or reserve increases partners’ capital, so think profit nature.