Question

Why do we distribute reserves, accumulated profits and losses among the old partners?

Answer 1

Sometimes the firm may have accumulated profits and reserves in the form of General Reserve, Reserve Fund and/or Profit and Loss account. These have not yet been transferred to the partner's capitals accounts. The new partner is not entitled to share in these accumulated profits since he was not a part of the firm when these profits were earned. These profits are only transferred to the old partner's capitals accounts in their old profit sharing ratio.

Similarly if there is an accumulated loss, it is transferred to the debit side of the partner's capitals accounts in their old profit sharing ratio.