What will be done with the accumulated profits at the time of dissolution of partnership firm?

Distributed among all partners

The correct answer is option 3- Distributed among all partners.

Accumulated profits are distributed between partners in their profit sharing ratio at the time of dissolution of partnership firm.

At the time of dissolution of a partnership firm, accumulated profits (like general reserve, profit and loss credit balance, etc.) are not transferred to the realization account. Instead, they are distributed among all partners in their profit-sharing ratio. For transfer of accumulated profits in the form of general reserve to partners’ capital accounts in their profit sharing ratio, the following journal entry is passed:
General Reserve A/c
       To Partners’ Capital A/c (individually)