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Reserves and Accumulated Profits on Admission ISC Class 12

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AccountsISC Class 12 · Reconstitution of Partnership: Admission

Reserves and Accumulated Profits on Admission of a Partner: ISC Class 12

Updated 15 October 2026 · Fact-checked

Reserves and accumulated profits at admission belong to the old partners, so they are credited to the old partners in the old ratio; accumulated losses and deferred revenue expenditure are debited to them. If reserves are to stay in the books, the ISC method passes one entry debiting the new partner's current account and crediting the sacrificing partners.

Reserves and profits from before admission are credited to old partners in the old ratio, losses are debited to them, and the new partner has no share.

Illustration drawn for QuestionBuddy.

Understand Reserves and Accumulated Profits on Admission

Whose reserve is it? A General Reserve or a credit balance of the Profit and Loss Account was built from profits earned *before* the new partner joined. So it belongs to the old partners. Equally, an accumulated loss (debit balance of P&L) or Advertisement Suspense / Deferred Revenue Expenditure is a past cost the old partners must bear. The CISCE syllabus lists General Reserve, Workmen Compensation Reserve, Investment Fluctuation Reserve, Contingency Reserve, P&L (debit and credit) and Advertisement Suspense / Deferred Revenue Expenditure.

Method 1: distribute (the usual case).

  • Reserves and P&L credit: Reserve A/c Dr; To Old Partners' Capital A/cs (old ratio).
  • P&L debit, Advertisement Suspense, Deferred Revenue Expenditure: Old Partners' Capital A/cs Dr (old ratio); To the asset account.

Workmen Compensation Reserve (WCR). Compare the reserve with the claim.

  • No claim: the whole reserve goes to old partners.
  • Claim less than the reserve: WCR Dr (full); To Provision for Workmen Compensation Claim (claim) and To Old Partners' Capitals (excess).
  • Claim more than the reserve: the reserve is used up and the excess claim is debited to Revaluation A/c (2024 ISC MCQ).

Investment Fluctuation Reserve (IFR). Compare the reserve with the fall in the value of investments (book value − market value).

  • Fall less than IFR: IFR Dr; To Investments (fall) and To Old Partners' Capitals (balance).
  • Fall more than IFR: IFR is used up; the extra fall is debited to Revaluation A/c.

Method 2: reserves to remain in the books (ISC one-entry method). Sometimes the partners decide to keep the reserves in the new Balance Sheet. The new partner would then own a share of them without having earned it. The syllabus prescribes one entry, adjusted through the incoming partner's current account (similar to goodwill not brought in cash):

  • For accumulated profits: New Partner's Current A/c Dr; To Sacrificing Partners' Capital/Current A/cs (sacrificing ratio).
  • For accumulated losses: Sacrificing Partners' Capital/Current A/cs Dr; To New Partner's Current A/c.

The amount is the new partner's share of the net accumulated profit. The 2025 ISC paper set exactly this with a Workmen Compensation Reserve partly reduced and partly retained; examiners noted candidates using the new partner's capital account instead of his current account, and missing the second entry.

Old ratio or sacrificing ratio? Distribution uses the old ratio (the reserve is simply paid out to its owners). The one-entry method uses the sacrificing ratio (the partners who give up a share are compensated). When sacrifice is in the old ratio the two coincide, but often they do not.

Reserves and Accumulated Profits on Admission: key facts

Distributed to old partners (old ratio)
  • General Reserve
  • Reserve Fund
  • Contingency Reserve
  • P&L (Cr)
  • Excess of WCR over claim
  • Excess of IFR over fall in investments
Reserve A/c Dr; To Old Partners' Capital A/cs.
Written off against old partners (old ratio)
  • P&L (Dr)
  • Advertisement Suspense
  • Deferred Revenue Expenditure
Old Partners' Capital A/cs Dr; To the asset.
Workmen Compensation Reserve
Claim nilall to old partners
Claim < WCRclaim to provision, excess to old partners
Claim > WCRexcess claim debited to Revaluation A/c
Investment Fluctuation Reserve
Fall < IFR: fall to Investments, balance to old partners | Fall > IFR: extra fall debited to Revaluation A/c
Fall = book value − market value.
Reserves retained (one entry)
New Partner's Current A/c Dr (his share of net accumulated profit) → Sacrificing Partners' Capital A/cs Cr (sacrificing ratio)
Reverse the entry for net accumulated losses.

How to answer Reserves and Accumulated Profits on Admission questions

Reserve adjustments appear in nearly every ISC admission problem, often as 3 of the 6 or 10 marks.

  1. 1List every reserve, P&L balance and fictitious asset on the Balance Sheet.
  2. 2Deal with WCR against the claim and IFR against the fall in investments first.
  3. 3Check the instruction: distribute, or retain in the books?
  4. 4Distribute: credit or debit old partners in the old ratio.
  5. 5Retain: find the net accumulated profit, take the new partner's share, and pass one entry through his current account in the sacrificing ratio.
  6. 6Post the results to the capital accounts and carry retained reserves to the new Balance Sheet.

Reserves and Accumulated Profits on Admission in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Savings belong to those who saved

Suppose three friends run a weekend cricket coaching camp and have saved ₹24,000 in a common pot from past seasons. A fourth friend joins as an equal partner from next season.

Should the new friend get a quarter of the ₹24,000? How should the pot be handled?

Try it first, then show the solutionSolution
  1. The pot came from seasons before the fourth friend joined, so it belongs to the three old partners.
  2. Shared equally among them: 24,000 ÷ 3 = ₹8,000 each.
  3. If they keep the pot in the business instead, the new friend should pay the old three for his quarter share of it (₹6,000).

Answer: ₹8,000 to each old partner, or ₹6,000 compensation from the newcomer if the pot stays in the business.

Memory hook: Old savings, old owners.

Tricks to remember Reserves and Accumulated Profits on Admission

Short memory aids. Say each one aloud once, then use it on a question the same day.

  • Claim beats reserve? Revaluation pays

    When the WCR claim is more than the reserve, the excess goes to the debit of Revaluation A/c.

    Use it when: WCR MCQs.

  • Distribute: old ratio; retain: sacrificing ratio

    Paying out uses the old ratio; compensating for a share of retained reserves uses the sacrificing ratio.

    Use it when: Choosing the ratio.

  • Retained reserve rides the current account

    The new partner's share of retained reserves is debited to his current account, not his capital account.

    Use it when: ISC one-entry method.

Reserves and Accumulated Profits on Admission: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Claim larger than the reserve · 1 mark · MCQBoard level

On the admission of a new partner, the Balance Sheet shows a Workmen Compensation Reserve of ₹60,000. A claim of ₹75,000 is to be provided. Which is correct?
(a) Old partners' capitals are credited with ₹15,000
(b) Revaluation Account is debited with ₹15,000
(c) Revaluation Account is credited with ₹15,000
(d) The new partner's capital is debited with ₹15,000

Try it first, then show the solutionSolution
  1. The reserve of ₹60,000 meets part of the claim.
  2. Excess claim 75,000 − 60,000 = ₹15,000 is a loss, debited to Revaluation A/c.

Answer: (b) Revaluation Account is debited with ₹15,000

Example 2: Distributing reserves and writing off losses · 3 marks · Short answerBoard level

Anil and Bina share profits 3:2. On admitting Chitra, their Balance Sheet shows General Reserve ₹50,000, P&L (Cr) ₹30,000 and Advertisement Suspense ₹20,000. Pass the journal entries. (3 marks)

Try it first, then show the solutionSolution
  1. General Reserve A/c Dr 50,000; P&L A/c Dr 30,000; To Anil's Capital 48,000; To Bina's Capital 32,000.
  2. Anil's Capital Dr 12,000; Bina's Capital Dr 8,000; To Advertisement Suspense A/c 20,000.
  3. Net credit: Anil ₹36,000; Bina ₹24,000. Chitra gets nothing.

Answer: Anil net ₹36,000 Cr; Bina net ₹24,000 Cr.

Example 3: Investment Fluctuation Reserve · 3 marks · Short answerHarder board level

Dev and Esha share profits equally. At Farhan's admission the Balance Sheet shows Investments ₹2,00,000 and an Investment Fluctuation Reserve of ₹24,000. The market value of the investments is ₹1,86,000. Pass the journal entry. (3 marks)

Try it first, then show the solutionSolution
  1. Fall in value = 2,00,000 − 1,86,000 = ₹14,000, met from IFR.
  2. Balance of IFR = 24,000 − 14,000 = ₹10,000 to old partners equally.
  3. IFR A/c Dr 24,000; To Investments A/c 14,000; To Dev's Capital 5,000; To Esha's Capital 5,000.

Answer: Investments reduced by ₹14,000; Dev and Esha credited ₹5,000 each.

Example 4: Several reserves at once · 6 marks · Long answerHarder board level

Jai and Veer share profits 3:2 and admit Zoya for one-fifth share. Their Balance Sheet shows: General Reserve ₹40,000; Workmen Compensation Reserve ₹25,000 (the claim is ₹9,000); Investment Fluctuation Reserve ₹15,000 (investments ₹1,20,000, market value ₹1,12,000); P&L (Dr) ₹18,000; Deferred Revenue Expenditure ₹12,000. All are to be adjusted. Calculate the net amount credited to each old partner and pass the entries. (6 marks)

Try it first, then show the solutionSolution
  1. General Reserve ₹40,000 to Jai and Veer: 24,000 and 16,000.
  2. WCR: Dr 25,000; To Provision for claim 9,000; to partners 16,000 (9,600 and 6,400).
  3. IFR: fall 8,000; Dr 15,000; To Investments 8,000; to partners 7,000 (4,200 and 2,800).
  4. P&L (Dr) 18,000 and Deferred Revenue Expenditure 12,000 debited: Jai 10,800 + 7,200; Veer 7,200 + 4,800.
  5. Net: Jai 24,000 + 9,600 + 4,200 − 10,800 − 7,200 = ₹19,800; Veer 16,000 + 6,400 + 2,800 − 7,200 − 4,800 = ₹13,200 (total ₹33,000).

Answer: Net credit: Jai ₹19,800; Veer ₹13,200.

Example 5: Reserves to remain in the books: one entry · 6 marks · Long answerHOTS / competency

Lena and Mo share profits 2:1. They admit Nia for one-fourth share, which she acquires from them in their old ratio. The Balance Sheet shows General Reserve ₹54,000, P&L (Cr) ₹30,000 and Advertisement Suspense ₹12,000. The partners decide that these balances will remain in the books. Pass a single adjustment entry. (6 marks)

Try it first, then show the solutionSolution
  1. Net accumulated profit = 54,000 + 30,000 − 12,000 = ₹72,000.
  2. Nia's share = 72,000 × 1/4 = ₹18,000.
  3. Sacrificing ratio = old ratio 2:1, so Lena 12,000 and Mo 6,000.
  4. Entry: Nia's Current A/c Dr 18,000; To Lena's Capital A/c 12,000; To Mo's Capital A/c 6,000.
  5. The reserves, P&L and Advertisement Suspense stay in the new Balance Sheet at their old figures.

Answer: Nia's Current A/c Dr ₹18,000; Lena Cr ₹12,000; Mo Cr ₹6,000.

Example 6: Only one partner sacrifices · 3 marks · Short answerHOTS / competency

Asif and Bela share profits equally. Chandni is admitted and the new ratio is Asif 2/4, Bela 1/4, Chandni 1/4. A General Reserve of ₹40,000 is to remain in the books. Pass the adjustment entry. (3 marks)

Try it first, then show the solutionSolution
  1. Sacrifice: Asif 1/2 − 2/4 = 0; Bela 1/2 − 1/4 = 1/4. Only Bela sacrifices.
  2. Chandni's share of reserve = 40,000 × 1/4 = ₹10,000.
  3. Entry: Chandni's Current A/c Dr 10,000; To Bela's Capital A/c 10,000.

Answer: Chandni's Current Dr ₹10,000; To Bela's Capital ₹10,000.

Where students lose marks in Reserves and Accumulated Profits on Admission

The slips examiners see most often, and what to write instead.

  • Mistake: Giving the new partner a share of distributed reserves

    Using the new ratio.

    Wrong working

    General Reserve 50,000 credited to Anil, Bina and Chitra in the new ratio

    Right working

    Credited to Anil and Bina only, 3:2

    Do this: Reserves on the date of admission belong to old partners.

    Usually costs: 1-2 marks.

  • Mistake: Ignoring the WCR balance not distributed

    Providing for the claim and forgetting the rest.

    Wrong working

    WCR Dr 9,000; To Provision 9,000 (16,000 left untouched)

    Right working

    Excess 16,000 to old partners, or adjusted through the one-entry method if retained

    Do this: ISC examiners in 2024 found candidates missing the entry for the reserve balance.

    Usually costs: 1 mark.

  • Mistake: Using the new partner's capital account in the one-entry method

    Treating it like a normal capital adjustment.

    Wrong working

    Nia's Capital A/c Dr 18,000

    Right working

    Nia's Current A/c Dr 18,000

    Do this: The syllabus specifies the incoming partner's current account; 2025 examiners penalised the capital account.

    Usually costs: 1 mark.

  • Mistake: Treating a reduction in WCR as a claim

    Not reading what the reduction means.

    Wrong working

    WCR Dr 6,000; To Provision for claim 6,000

    Right working

    WCR Dr 6,000; To Old Partners' Capitals (old ratio)

    Do this: A reduction of the reserve releases it to old partners; only a claim creates a provision.

    Usually costs: 1 mark.

Exam tips

  • Write the old ratio and the sacrificing ratio at the top of your answer before any entry.
  • In WCR and IFR questions, show the comparison (claim v reserve, fall v reserve) as a working note.
  • When reserves are retained, say so in the narration: 'Being Nia's share of accumulated profits retained in the business adjusted'.
  • Carry the retained reserves to the new Balance Sheet in horizontal format, as the syllabus requires.

Practice questions on Reserves and Accumulated Profits on Admission

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

  1. Q1 · 1 mark · MCQBoard level

    On admission of a partner, General Reserve appearing in the Balance Sheet is transferred to:
    (a) all partners in the new ratio
    (b) old partners in the old ratio
    (c) old partners in the sacrificing ratio
    (d) the new partner only

    Hint

    Who earned it?

    Answer

    (b) old partners in the old ratio

  2. Q2 · 1 mark · MCQBoard level

    Deferred Revenue Expenditure appearing in the Balance Sheet at the time of admission is:
    (a) credited to old partners
    (b) debited to all partners in the new ratio
    (c) debited to old partners in the old ratio
    (d) carried forward to the new Balance Sheet always

    Hint

    A past cost not yet written off.

    Answer

    (c) debited to old partners in the old ratio

  3. Q3 · 3 marks · Short answerBoard level

    Workmen Compensation Reserve ₹45,000; claim ₹30,000. Old partners share 2:1. Pass the entry on admission of a new partner. (3 marks)

    Hint

    Excess 15,000.

    Answer

    WCR A/c Dr 45,000; To Provision for Workmen Compensation Claim 30,000; To Old Partner 1's Capital 10,000; To Old Partner 2's Capital 5,000.

  4. Q4 · 3 marks · Short answerHarder board level

    Investments ₹80,000 (market value ₹66,000); Investment Fluctuation Reserve ₹10,000. Pass the entries on admission. (3 marks)

    Hint

    Fall exceeds the reserve.

    Answer

    Fall = 14,000. IFR A/c Dr 10,000; Revaluation A/c Dr 4,000; To Investments A/c 14,000. Nothing goes to the partners.

  5. Q5 · 3 marks · Short answerHarder board level

    Three old partners share equally. Contingency Reserve ₹18,000 and P&L (Dr) ₹6,000 appear in the Balance Sheet at the admission of a fourth partner. What is the net effect on each old partner? (3 marks)

    Hint

    Net 12,000.

    Answer

    Contingency Reserve credited 6,000 each; P&L debit 2,000 each; net credit ₹4,000 to each old partner.

  6. Q6 · 6 marks · Long answerHarder board level

    Rhea and Sam share profits 3:2. Their Workmen Compensation Reserve is ₹18,000. On admitting Tara for one-fifth share (sacrificed in the old ratio), the reserve is to be reduced to ₹12,000 and the reduced reserve is to remain in the books. Pass the journal entries. (6 marks)

    Hint

    Two entries: the reduction, then Tara's share of what remains.

    Answer

    (i) WCR A/c Dr 6,000; To Rhea's Capital 3,600; To Sam's Capital 2,400. (ii) Tara's Current A/c Dr 2,400 (12,000 × 1/5); To Rhea's Capital 1,440; To Sam's Capital 960.

  7. Q7 · 1 mark · Assertion-reasonHarder board level

    Assertion (A): Accumulated profits on the date of admission are credited to the old partners.
    Reason (R): They were earned before the new partner joined the firm.
    (a) Both A and R are true, and R is the correct explanation of A.
    (b) Both A and R are true, but R is not the correct explanation of A.
    (c) A is true, but R is false.
    (d) A is false, but R is true.

    Hint

    Ownership of past profits.

    Answer

    (a) Both A and R are true, and R is the correct explanation of A.

  8. Q8 · 6 marks · Long answerHarder board level

    Uma and Vik share profits equally. At Wasim's admission: General Reserve ₹30,000; P&L (Dr) ₹10,000; Workmen Compensation Reserve ₹20,000 against a claim of ₹26,000. Pass the entries and find the net amount to each old partner. (6 marks)

    Hint

    The excess claim goes to Revaluation.

    Answer

    WCR A/c Dr 20,000; Revaluation A/c Dr 6,000; To Provision for claim 26,000. General Reserve 30,000 credited 15,000 each; P&L debit 5,000 each. Net from reserves: ₹10,000 to each (their share of the ₹6,000 revaluation loss is shared through the Revaluation A/c).

  9. Q9 · 6 marks · Long answerHOTS / competency

    Xena and Yash share profits 3:2. Zane is admitted and the new ratio is 2:2:1. A General Reserve of ₹50,000 is to remain in the books. Pass the adjustment entry. (6 marks)

    Hint

    Find who sacrifices.

    Answer

    Sacrifice: Xena 3/5 − 2/5 = 1/5; Yash 2/5 − 2/5 = 0. Zane's share = 50,000 × 1/5 = 10,000. Entry: Zane's Current A/c Dr 10,000; To Xena's Capital A/c 10,000.

  10. Q10 · 3 marks · Short answerHOTS / competency

    Old partners share 3:2. The Revaluation Account shows a profit of ₹20,000 before considering a Workmen Compensation claim of ₹62,000 against a reserve of ₹50,000. Find the final revaluation result and each old partner's share. (3 marks)

    Hint

    Only the excess claim reaches Revaluation.

    Answer

    Excess claim 12,000 debited to Revaluation; profit = 20,000 − 12,000 = ₹8,000, shared ₹4,800 and ₹3,200.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

  1. 1.WCR ₹50,000, claim ₹20,000: amount credited to old partners?Show answer

    ₹30,000.

  2. 2.Where does excess of fall in investments over IFR go?Show answer

    Debit of Revaluation A/c.

  3. 3.Ratio for distributing reserves on admission?Show answer

    Old ratio.

  4. 4.Ratio for the one-entry method when reserves are retained?Show answer

    Sacrificing ratio.

  5. 5.Which account of the new partner is debited in the one-entry method?Show answer

    His current account.

Reserves and Accumulated Profits on Admission: frequently asked questions

Why is the excess workmen compensation claim debited to the Revaluation Account?

It is a new liability that the reserve cannot cover, so it is a loss on reassessing liabilities. The Revaluation Account passes it to the old partners in the old ratio.

What if the question says reserves are not to be distributed?

Keep them in the new Balance Sheet and pass one entry: the new partner's current account is debited with his share of the net accumulated profit, and the sacrificing partners are credited.

Is Advertisement Suspense a reserve?

No. It is a deferred revenue expenditure (a fictitious asset), so it is written off against the old partners.

Does the new partner bear any part of a pre-admission accumulated loss?

No. If the loss is written off, old partners bear it in the old ratio. If it is kept in the books, the sacrificing partners compensate the new partner through the one-entry method.