Q.On the retirement of a partner, a firm's Balance Sheet showed a General Reserve of ₹60,000 and a debit balance of Profit and Loss A/c of ₹18,000. The partners, Ravi, Suresh and Mahesh, shared profits in the ratio 5 : 3 : 2. Show how these two items would be adjusted among the partners' Capital Accounts.

The General Reserve is a gain to be credited to all partners, and the Profit and Loss debit balance is a loss to be debited to all partners — both in the old ratio.

Both items are adjusted through the partners' Capital Accounts in the OLD ratio of 5 : 3 : 2 (total 10 parts), since both relate to years before the current reconstitution.

Step 1 — General Reserve ₹60,000 (a gain, credited to all partners).

Journal: General Reserve A/c Dr. ₹60,000; To Ravi's Capital A/c ₹30,000; To Suresh's Capital A/c ₹18,000; To Mahesh's Capital A/c ₹12,000.

Step 2 — Profit and Loss A/c debit balance ₹18,000 (a loss, debited to all partners).

Journal: Ravi's Capital A/c Dr. ₹9,000; Suresh's Capital A/c Dr. ₹5,400; Mahesh's Capital A/c Dr. ₹3,600; To Profit and Loss A/c ₹18,000.

Step 3 — Net effect on each partner's Capital Account.

The two adjustments can also be combined into a single net journal entry per partner if preferred, but showing them separately (Reserve credited, then P&L debit balance debited) makes …

A common mistake is netting the General Reserve and the Profit and Loss debit balance BEFORE distributing (i.e., distributing only ₹42,000) — while the final capital effect works out the same here because both use the identical ratio, it is safer and clearer exam technique to dis …