Q.Vivin, Hari and Joy are partners sharing profits and losses equally. On 31-3-2017 Hari retired. On the date of retirement, the books of the firm showed a general reserve of ₹ 60,000. Pass the journal entries to transfer the general reserve.

General reserve belongs to all partners; on retirement it is credited to all partners' capital accounts in the old ratio. Option (b).

A general reserve is undistributed past profit that all partners (including the retiring one) helped earn.

• On retirement it must be shared among all the partners — including the one leaving — in their old profit-sharing ratio, by crediting their capital/current accounts.
• It is not credited only to the continuing partners (that would deny the retiring partner his share). …

Accumulated profits/reserves/losses are distributed in the old profit-sharing ratio on a partner's retirement.

In the TN HSC Class-12 Accountancy syllabus (Retirement and Death of a Partner), any accumulated profits, reserves (e.g. general reserve) and accumulated losses appearing in the balance sheet were earned or incurred before the retirement, when all partners (including the outgoing one) shared profits in the old ratio.

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On retirement, General Reserve (an accumulated profit) is transferred to the capital accounts of all partners in their old profit-sharing ratio.

General Reserve represents past, undistributed profits that were earned while all partners — including the retiring one — were in the firm. Therefore, at the time of retirement it must be shared by everyone who helped earn it:

• It is credited to the capital accounts of all the partners in the old ratio.
• The retiring partner gets his due share, which then forms part of the amount payable to him. …

On retirement, accumulated profits and losses are distributed in the old profit-sharing ratio — option (d).

Undistributed items — general reserve, reserve fund, credit/debit balance of profit and loss account — were built up while the old firm was running. They therefore belong to all partners (including the retiring one) in the ratio in which they shared profits at that time, i.e. the old profit-sharing ratio. Each partner's capital account is credited (for profits/reserves) or debited (for losses) accordingly.

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