At the time of admission of a new partner, General Reserve appearing in the old Balance Sheet represents accumulated profits that belong to the old/existing partners only.
Since this reserve was created from profits earned before the new partner joined the firm, the new partner has no claim over it.
Therefore, General Reserve is transferred to the old partners' capital accounts in their old profit-sharing ratio.
Journal Entry:
General Reserve Account ... Dr.
To Old Partners' Capital Accounts (in old ratio)
Example: If A and B are old partners sharing profits equally (1:1) and General Reserve is ₹40,000:
- A's Capital A/c will be credited with ₹20,000
- B's Capital A/c will be credited with ₹20,000
This ensures that accumulated profits earned before admission are distributed only among those who actually contributed to earning them (i.e., the old partners).