Accountancy Part AAdmission of a Partner

At the time of admission of a new partner, if Profit and Loss Account…

At the time of admission of a new partner, if Profit and Loss Account debit balance exist in the books, then which of the following entry will be done in order to distribute it?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Old Partners’ Capital A/c Dr., To Profit and Loss A/c

A debit balance of the Profit and Loss Account is a loss of the past, made before the new partner joined. He is not responsible for it, so it is written off to the old partners’ capital accounts in their old profit sharing ratio. Profit and Loss Account is credited, which clears its debit balance.

NCERT (2026-27 edition):
Adjustment for Accumulated Profits and Losses – “… 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).”