A, B and C are partners in a firm. If D is admitted as a new partner :

The correct answer is Option (3) → Old partnership is reconstituted

Admission of a new partner changes the agreement among the partners. The old partnership agreement ends and a new one takes its place, but the firm continues its business; this is called reconstitution of the partnership.

Option (1) Old firm is dissolved — Incorrect. The firm is not closed; its business, assets and liabilities continue.

Option (2) Old firm and old partnership is dissolved — Incorrect. Only the old agreement changes; dissolving the firm would mean selling its assets and closing its books.

Option (4) New partnership firm is established — Incorrect. No new firm comes into being; the same firm goes on with a changed set of partners.