Accountancy Part AAdmission of a Partner

At the time of admission of a new partner, general reserve appearing…

At the time of admission of a new partner, general reserve appearing in the old Balance Sheet is transferred to:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Old partners in old Profit Sharing Ratio

A general reserve in the old Balance Sheet is profit earned before the admission. The new partner has no claim on it, so it is transferred to the old partners’ capital accounts in their old profit sharing ratio, the ratio in which they earned it.

Why the other options are incorrect

Option (2) Old partners in new Profit Sharing Ratio — Incorrect. The new ratio applies to profits after the admission; the reserve belongs to the period before it.
Option (3) All partners in the new Profit Sharing Ratio — Incorrect. This would give the incoming partner a share of profits earned before he joined.
Option (4) All partners in Gaining Ratio — Incorrect. The gaining ratio is used when continuing partners gain on a retirement or death, not for distributing an old reserve.

NCERT (2026-27 edition):
Adjustment for Accumulated Profits and Losses – “Sometimes a firm may have accumulated profits not yet transferred to capital accounts of the partners. These are usually in the form of general reserve, reserve and/or Profit and Loss Account. The new partner is not entitled to have any share in such accumulated profits. These are distributed among the partners by transferring it to their capital current accounts in old profit sharing ratio.”

NCERT (2026-27 edition):
Test your Understanding

Extract from the NCERT textbook