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 4
The correct answer is Option (4) → Old partners in old profit sharing ratio
Undistributed profits and reserves were earned before the new partner joined, so they belong only to the old partners. They are transferred to the old partners’ capital (or current) accounts in the ratio in which those profits were earned, the old profit sharing ratio.
Why the other options are incorrect
Option (1) Old partners in new profit sharing ratio — Incorrect. The new ratio applies to profits earned after the admission; these profits were earned under the old ratio.
Option (2) Sacrificing partners in sacrificing ratio — Incorrect. The sacrificing ratio is used to share the new partner’s premium for goodwill, not past profits, and a partner who sacrifices nothing still owns his part of the reserve.
Option (3) All the partners in the new profit sharing ratio — Incorrect. This would give the new partner a part of profits earned before he joined, to which he has no right.
Note: This question is the NCERT (2026-27) Test your Understanding question word for word, but the answer key at the end of the book’s chapter prints “5. (b)”, that is, old partners in the new profit sharing ratio. That is a misprint in the book: its own text, shown below, says accumulated profits are transferred to the old partners in the old profit sharing ratio, which is the answer given by NTA.
NCERT (2026-27 edition): |