Transfer of Reserves to Existing Partners :

Reserves created out of profits or balance in Profit and Loss Account at the time of admission of a new partner must be transferred to the capital accounts of the old partners in the old profit sharing ratio. It is done because the new partner is not entitled to any share of the accumulated profits and similarly, he is not liable to bear any part of the past losses. So, the accumulated losses should also be transferred to the capital accounts of the old partners in the old profit sharing ratio. Transfer of reserves is done even when no new partner is admitted but the partners change their profit sharing ratio. The journal entry will be: