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:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Old partners in old profit sharing ratio
Undistributed profits and reserves were earned while the old firm ran, so they belong to all the partners of that firm, the retiring partner included. They are transferred to all the partners’ capital accounts in their old profit sharing ratio, and the retiring partner takes his share with him.
Why the other options are incorrect
Option (1) Newly admitted partner only — Incorrect. There is no new partner on retirement, and a newcomer never shares past profits anyway.
Option (3) All the partners, except new in the new profit sharing ratio — Incorrect. Past profits are shared in the ratio in which they were earned, the old ratio, not the new one.
Option (4) Old partners in the sacrificing ratio — Incorrect. The sacrificing ratio decides goodwill compensation, not the division of accumulated profits.
NCERT (2026-27 edition): |