At the time of admission of a new partner, General Reserve appearing in the old balance sheet is transferred to Old Partners' Capital Accounts only.
The general reserve represents accumulated profits from past years when only the old partners were running the business. These profits belong exclusively to the old partners as they were earned before the new partner joined the firm.
The journal entry recorded is:
General Reserve A/c ... Dr
To Old Partners' Capital A/c (in old profit sharing ratio)
The new partner has no right over past accumulated profits or reserves. The new partner is entitled to share only the profits earned after the date of admission.
If general reserve is not transferred to old partners' capital accounts, it would wrongly give the new partner a share in profits that were earned before they became a partner. This would be unfair to the old partners.
Therefore, Option 3: Old partner's capital account is correct.