When both accumulated profit and accumulated loss exist at the time of a partner’s admission, what is the quick and correct method of adjustment?

Correct answer: Find the net effect and adjust it among the old partners in their old ratio

Accumulated profit and accumulated loss relate to the period before admission, so their effect belongs only to the old partners. As a quick method, subtract the accumulated loss from the accumulated profit to determine the net effect, then distribute or adjust it among the old partners in their old profit-sharing ratio. The new partner receives no share in these past items. Exam tip: a net profit is credited to the old partners’ capital accounts, while a net loss is debited to them.