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

Old partners in old profit sharing ratio

The correct answer is option 3- Old partners in old profit sharing ratio.

At the time reconstitution of the firm, reserves are distributed between old or existing partners in their old ratio. 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 (existing partners) by transferring it to their capital or 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, they are also debited to partners capital or current A/c.