The accumulated profits and reserves are transferred to:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Partners' Capital Accounts
At the time of reconstitution (admission, retirement, or death of a partner) or dissolution, the accumulated profits and reserves standing in the Balance Sheet are distributed among all partners in their old profit-sharing ratio. This is done by transferring them to the Partners' Capital Accounts, since these profits/reserves belong to the partners.