Q.A, B and C share profits in the ratio 3:2:1. At the time of B's retirement, the firm's Balance Sheet shows a General Reserve of Rs 30,000 and a debit balance (loss) in the Profit and Loss Account of Rs 6,000. Show how these are dealt with in the partners' capital accounts.

Accumulated reserves and undistributed profits or losses lying in the Balance Sheet at the time of retirement belong to all the partners in their old ratio and must be cleared out of the books before the retiring partner's account is finally settled.

Step 1 — General Reserve (Rs 30,000), shared in the old ratio 3:2:1 (6 parts).

Journal entry: General Reserve A/c Dr Rs 30,000; To A's Capital A/c Rs 15,000; To B's Capital A/c Rs 10,000; To C's Capital A/c Rs 5,000.

Step 2 — Accumulated loss in P&L A/c (Rs 6,000), similarly shared in the old ratio.

Journal entry: A's Capital A/c Dr Rs 3,000; B's Capital A/c Dr Rs 2,000; C's Capital A/c Dr Rs 1,000; To Profit and Loss A/c Rs 6,000.

Step 3 — Dual-solve check. 15,000 + 10,000 + 5,000 = Rs 30,000 (matches the reserve); 3,000 + 2,000 + 1,000 = Rs 6,000 (matches the loss). Both totals tie back exactly to the figures given.

Only after clearing these two items — along with revaluation and goodwill — does B's capital account show the true final amount due on retirement.

Students sometimes distribute the General Reserve and the accumulated loss in the NEW ratio, or only between the continuing partners — both must be shared among ALL partners, including the retiring or deceased partner, in the OLD ratio, exactly like revaluation profit or loss.