If there are some accumulated losses in the form of a debit balance o…

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.

A debit balance of the Profit and Loss Account is a loss made before the new partner joined. Just as he takes no share of past profits, he bears none of past losses, so it is written off to the old partners’ capital accounts in their old profit sharing ratio.

Option (2) The new partners' capital accounts. — Incorrect. The new partner had no part in the business when the loss arose.

Option (3) All partners' capital accounts. — Incorrect. Sharing it among all partners would make the new partner bear a past loss.

Option (4) Not any partners' capital accounts. — Incorrect. The loss cannot be left in the balance sheet; it must be written off to the partners who made it.

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. 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 (see Illustration 22).”