X,Y & Z are partners in the firm sharing profits and losses in the ratio of 3:2:1. Z retires from the firm on 31st March 2021. On the date of retirement of Z, a general reserve of ₹1,80,000 appeared in the books of account. What will be the journal entry for this?

General Reserve A/c    Dr. ₹1,80,000
   To X's Capital A/c                    ₹90,000
   To Y's Capital A/c                    ₹60,000
   To Z's Capital A/c                    ₹30,000
(Reserve distributed)

The correct answer is option 1-
General Reserve A/c    Dr. ₹1,80,000
   To X's Capital A/c                           ₹90,000
   To Y's Capital A/c                           ₹60,000
   To Z's Capital A/c                           ₹30,000
(Reserve distributed)

Reserve distributed among partners in old ratio as it belong to them from their past business so it is distributed between old partners in their old ratio. Crediting general reserve to partners will increase their capital balances.

Reserve = 1,80,000
Old profit sharing ratio = 3:2:1
X 's share = 1,80,000 x 3/6
                 = 90,000

Y 's share = 1,80,000 x 2/6
                 = 60,000

Z 's share = 1,80,000 x /6
                 = 30,000

So, journal entry for this-

General Reserve A/c    Dr. ₹1,80,000
   To X's Capital A/c                     ₹90,000
   To Y's Capital A/c                     ₹60,000
   To Z's Capital A/c                     ₹30,000
(Reserve distributed)