Assertion: General Reserve is not distributed among the old partners but is carried forward in the Balance Sheet prepared after admission of a partner.
Reasoning: General Reserve is set aside out of past profits and therefore, it is distributed among old partners in their old profit sharing ratio.
Reasoning: General Reserve is set aside out of past profits and therefore, it is distributed among old partners in their old profit sharing ratio.
Answer & explanation
Correct answer: option 4
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. Similarly, if there are some accumulated losses in the form of a debit balance of profit and loss account and/or deferred revenue expenditure appearing in the balance sheet of the firm, it should be transferred to the old partners’ capital accounts.