Question

On admission of a partner, the general reserve in the old balance sheet is transferred to:

• A. All partners' capital accounts
• B. New partner's capital account
• C. Old partners' capital accounts
• D. None of these

Hint:

General reserve is shared only by old partners in their old ratio.

Answer 1

The Correct Option is C

General reserve is accumulated profit earned before the new partner joins the firm. Since the new partner did not contribute to earning this profit, he is not entitled to a share in it. Therefore, at the time of admission, the general reserve is credited only to the old partners' capital accounts in their old profit-sharing ratio. This adjustment ensures fairness by giving past profits only to those who earned them.