At the time of admission of a partner, undistributed profits appearing in the balance sheet of the old firm is transferred to the capital account of:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Old partners in old profit sharing ratio.
At the time of admission 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.
If a firm may have accumulated profits in the form of a general reserve, reserve, and/or credit balance of the Profit and Loss Account. When a new partner joins the firm, they do not have any entitlement to a share in these accumulated profits. Instead, these profits are distributed among the existing partners by transferring them to their capital or current accounts, based on the old profit-sharing ratio. Partner's account is credited for the profit share.