Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

At the time of death of a partner, if general reserve appears in the…

At the time of death of a partner, if general reserve appears in the balance sheet, it should be credited to:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → All partners including deceased partner in their old profit sharing ratio.

A general reserve is profit kept back in past years, earned while the deceased partner was still in the firm. So his share of it is part of his claim, and the reserve is divided among all the partners in the ratio in which they shared profits then.

Why the other options are incorrect

Option (2) Remaining partners in the new profit sharing ratio. — Incorrect. It leaves out the deceased partner, whose share is paid to his executors; the new ratio is for future profits only.
Option (3) Neither the deceased nor the remaining partners. — Incorrect. The reserve belongs to the partners and is transferred to their capital accounts on reconstitution.
Option (4) Remaining partner in gaining ratio. — Incorrect. The gaining ratio is used for the deceased partner's share of goodwill, not for profits of past years.

NCERT (2026-27 edition):
Adjustment of Accumulated Profits and Losses – “Sometimes, the Balance Sheet of a firm may show accumulated profits in the form of general reserve and/on accumulated losses in the form of profit and loss account debit balance. The retiring/deceased partner is entitled to his/her share in the accumulated profits and is also liable to share the accumulated losses, if any. These accumulated profits or losses belong to all the partners and should be transferred to the capital accounts of all partners in their old profit sharing ratio. The following journal entries are recorded for the purpose.”

At the time of death of a partner, if general reserve appears in the balance sheet, it should be credited to:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → All partners including deceased partner in their old profit sharing ratio.

Why the other options are incorrect

Option (2) Remaining partners in the new profit sharing ratio. — Incorrect. It leaves out the deceased partner, whose share is paid to his executors; the new ratio is for future profits only.
Option (3) Neither the deceased nor the remaining partners. — Incorrect. The reserve belongs to the partners and is transferred to their capital accounts on reconstitution.
Option (4) Remaining partner in gaining ratio. — Incorrect. The gaining ratio is used for the deceased partner's share of goodwill, not for profits of past years.