Question

At the time of admission of a partner, ‘General Reserve’ appearing in the Balance Sheet of the firm is transferred to the Capital Accounts of the following:

Options

• Old partners in the old profit-sharing ratio

• Old partners in a new profit-sharing ratio

• All the partners in the new profit-sharing ratio

• Old partners in the sacrificing ratio

Answer 1

Old partners in the old profit-sharing ratio

Explanation:

A General Reserve represents profits earned by the firm before the date of the new partner’s admission. These accumulated profits belong exclusively to the old partners and must be distributed among them in their old profit-sharing ratio to reflect their claim on those earnings. The new partner has no claim on profits made before they joined the firm.