Accountancy Part AAdmission of a Partner

At the time of admission of a partner, undistributed profits appearin…

At the time of admission of a partner, undistributed profits appearing in the balance sheet of the old firm is transferred to the capital account of:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Old partners in old profit sharing ratio

Profits lying undistributed in the balance sheet (general reserve, reserve, credit balance of Profit and Loss Account) were earned before the new partner joined. He has no claim on them, so they are credited to the old partners only, in the ratio in which those profits were earned — the old profit sharing ratio. The new ratio applies only to profits earned after admission.

Note: The book’s answer key prints “5. (b)” (old partners in the new ratio) for this item. By the book’s own text, accumulated profits go to the old partners in the old profit sharing ratio, so the answer should be (a); the key line is a misprint.

NCERT (2026-27 edition):
Test your Understanding – II

Extract from the NCERT textbook

NCERT (2026-27 edition):
Adjustment for Accumulated Profits and Losses – “Sometimes a firm may have accumulated profits not yet transferred to capital accounts of the partners. These are usually in the form of general reserve, reserve and/or Profit and Loss Account. The new partner is not entitled to have any share in such accumulated profits. These are distributed among the partners by transferring it to their capital current accounts in old profit sharing ratio.”