Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

At the time of death of a partner, undistributed Losses appearing in…

At the time of death of a partner, undistributed Losses appearing in the balance sheet of the old firm is transferred to the capital account of:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Old partners in old profit sharing ratio

Undistributed losses shown in the balance sheet (a debit balance of Profit and Loss Account) arose while all the old partners, the deceased partner included, were sharing profits. So they are written off to all the partners’ capital accounts in the old profit sharing ratio, and the deceased partner bears his share of them.

NCERT (2026-27 edition):
Adjustment of Accumulated Profits and Losses – “Sometimes, the Balance Sheet of a firm may show accumulated profits in the form of general reserve and/on accumulated losses in the form of profit and loss account debit balance. The retiring/deceased partner is entitled to his/her share in the accumulated profits and is also liable to share the accumulated losses, if any. These accumulated profits or losses belong to all the partners and should be transferred to the capital accounts of all partners in their old profit sharing ratio.”