If there are some accumulated losses in the form of a debit balance of profit and loss account appearing in the balance sheet of the firm. It should be transferred to:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → The old partners' capital accounts.
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At the time of admission of a new partner, any accumulated losses (like debit balance of Profit & Loss A/c, fictitious assets, deferred revenue expenses, etc.) appearing in the Balance Sheet are adjusted before the new partner comes in.
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These represent past losses, which should be borne only by the old partners (since they enjoyed past profits, if any).
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Therefore, such losses are transferred to the old partners’ capital accounts in their old profit-sharing ratio.