Accountancy Part AAdmission of a Partner

At the time of admission of a partner, undistributed profits appearin…

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

Undistributed profits (a credit balance of Profit and Loss Account, general reserve) were earned before the admission, when only the old partners shared profits. So they belong to the old partners and are credited to their capital accounts in the old profit sharing ratio; the new partner gets none of them, and the new ratio applies only to future profits.

Note: This question is NCERT’s own Test your Understanding question (2026-27). NCERT’s answer key prints (b), “old partners in new profit sharing ratio”, for it. That is a misprint in the book: the book’s own text says such profits are distributed among the old partners in the old profit sharing ratio. The answer given by NTA, Option (1), agrees with the text.

NCERT (2026-27 edition):
Test your Understanding – II

Extract from the NCERT textbook

NCERT (2026-27 edition):
Adjustment for Accumulated Profits and Losses – “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 by transferring it to their capital current accounts in old profit sharing ratio.”