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:

The old partners' capital accounts.

The correct answer is Option (1) → The old partners' capital accounts.

• 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.

• These represent past losses, which should be borne only by the old partners (since they enjoyed past profits, if any).

• Therefore, such losses are transferred to the old partners’ capital accounts in their old profit-sharing ratio.