Question

At the time of admission of a new partner, if Profit and Loss Account debit balance exist in the books, then which of the following entry will be done in order to distribute it?

• A. Profits and Loss A/c Dr.
  To Old Partners' Capital A/c
• B. Profit and Loss A/c Dr.
  To All Partners' Capital A/c (including new)
• C. Old Partners' Capital A/c Dr.
  To Profit and Loss A/c
• D. All Partners' Capital A/c (including new) Dr.
  To Profit and Loss A/c

Hint:

A debit balance in P&L is a past loss. Charge it to old partners' capital in the old ratio.

Answer 1

The Correct Option is C

Step 1: Read the balance:
A debit balance in the Profit and Loss Account is a loss that is still not written off. It has no real value as an asset, so it should be cleared at admission.

Step 2: Who should bear the loss:
The loss was made in the years before the new partner arrived. Only the old partners were in the firm then. So they alone bear it, and they share it in their old ratio.

Step 3: Build the entry:
To bring a debit balance to zero we credit that account. The old partners lose, so their capital accounts are debited.
Old Partners' Capital A/c Dr.
To Profit and Loss A/c

Step 4: Match with the options:
Only option (3) has this debit and credit. Options (1) and (2) debit the Profit and Loss A/c, which is the opposite of what is needed. Option (4) puts a share of the loss on the new partner, which is not fair.

Final Answer:
Option (3). \[ \boxed{\text{Old Partners' Capital A/c Dr. To Profit and Loss A/c}} \]