The reserve fund at the time of admission of a new partner is transferred to -

When a new partner is admitted to a partnership firm, any existing reserves or accumulated profits belong solely to the old partners as these were earned during their tenure.

The reserve fund represents undistributed profits that accumulated before the new partner joined. Since the new partner did not contribute to earning these profits, they have no claim over them.

Treatment:

Reserve Fund is transferred to Old Partners' Capital Accounts in their old profit sharing ratio.

Why not other options?

• Revaluation Account is used only for recording changes in values of assets and liabilities at the time of reconstitution, not for distributing reserves.
• Capital Reserve would mean keeping the reserve intact, which defeats the purpose of settling past claims.
• All Partners' Capital Account would incorrectly give the new partner a share in profits they didn't help earn.

Journal Entry:

$\text{Reserve Fund A/c} \quad \text{Dr.}$

$\quad \text{To Old Partners' Capital A/cs (in old ratio)}$

This ensures that the economic benefit of past profits is credited to those who earned them, maintaining fairness in the partnership.