What will be done with the Contingency reserve appearing in the balance sheet at the time of admission of the partner?

Debited to old partners in old ratio Credited to old partners in old ratio Either option 1 or 2 None of these

Credited to old partners in old ratio

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. Similarly, if there are some accumulated losses in the form of a debit balance of profit and loss account and/or deferred revenue expenditure appearing in the balance sheet of the firm. It should be transferred to the old partners’ capital accounts.