At the time of admission of new partner, if there exists any reserve or accumulated profit in the books of the firm, these should be transferred to the old partners' capital/current accounts in the old profit sharing ratio. Because these items belong to the old partners, not the new partner.
In the same manner, old partners' capital/current accounts should be debited in old ratio if there appears any accumulated losses in the assets side of balance sheet. The journal entries are:
1. For Accumulated Profits/Reserves:
Profit and loss A/C.....................................Dr.
General reserves A/C................................Dr.
Workmen compensation reserve A/C......Dr.
(excess over actual liability)
Investment fluctuation reserve A/C.........Dr.
Joint life policy reserve A/C........................Dr.
To old partners' capital/current A/C
(Being transfer of reserves and profit to old partners in their old profit sharing ratio)
2. For Accumulated Loss
Old partners' capital/current A/C.................Dr.
To profit and loss A/C
To Deferred revenue expenditure A/C
To Preliminary expenses A/C
( Being transfer of accumulated losses to the old partner in old ratio)
However, all the partners(including new) may also decide to show the reserves in the books at its original or same agreed value. In such situation, all the partners' capital A/Cs are debited in new profit sharing ratio and reserves are credited at agreed value:
All partners' Capital A/C................Dr.
To General Reserves A/C
(Being general reserve brought)