A, B & C are partners sharing profits in the ratio of 5:4:1. Their capital accounts showing balance of ₹3,00,000, ₹1,50,000, ₹1,50,000 respectively. It is decided between partners that they will share future profits equally. Firm has the following information-

Creditors- ₹1,10,000
Salary payable- ₹30,000
O/s expenses- ₹10,000
General reserve- ₹40,000
Bank balance- ₹2,10,000
Sundry debtors- ₹1,00,000
Provision for doubtful debts- ₹10,000
Stock -₹50,000
Furniture- ₹40,000
Computers- ₹2,00,000
Vehicle- ₹2,00,000

How will general reserve be treated?

Credit to all partner's account

The correct answer is option 2- Credit to all partner's account.

general reserve be Credited to all partner's account in their old profit sharing ratio.

If a firm may have accumulated profits in the form of a general reserve, reserve, and/or credit balance of the Profit and Loss Account. When a new partner joins the firm, they do not have any entitlement to a share in these accumulated profits. Instead, these profits are distributed among the existing partners by transferring them to their capital or current accounts, based on the old profit-sharing ratio. Partner's account is credited for the profit share. So, all the 3 (A,B,C) partners got 20,000, 16,000, 4,000 respectively.