When a new partner is admitted, the undistributed profits that appear in the balance sheet of the old firm are transferred to the capital account of:
- AOld partners in new profit sharing ratio
- BOld partners in old profit sharing ratio
- CAll the partners in the new profit sharing ratio
- DAll the partners in the old profit sharing ratio
Solution & Step-by-step Explanation
Accumulated profits, reserves, and undistributed losses belong to the existing (old) partners because they were earned prior to the admission of the new partner. Therefore, at the time of admission, these balances are transferred strictly to the capital accounts of the old partners in their old profit-sharing ratio.