Steps involved in various accounting aspects of retirement or death of a partner -

(A) Settlement of the amounts due to retired/deceased partner

(B) Ascertainment of new profit sharing ratio and gaining ratio

(C) Adjustment of capital, if required

(D) Revaluation of assets and liabilities

Choose the correct answer from the options given below:

When a partner retires or dies from a partnership firm, the accounting treatment follows a specific logical sequence:

First, the new profit sharing ratio among the continuing partners must be determined. This helps establish how the remaining partners will share profits going forward. The gaining ratio is also calculated to identify which partners are gaining from the retiring/deceased partner's share and in what proportion. This is essential because the gaining partners need to compensate the outgoing partner for goodwill.

Second, revaluation of assets and liabilities is carried out. At the time of retirement/death, all assets and liabilities must be restated at their current market values. Any profit or loss from revaluation is distributed among all partners (including the retiring/deceased partner) in their old profit sharing ratio. This ensures the retiring/deceased partner gets their rightful share of any appreciation or depreciation.

Third, capital adjustment is done if required. After all revaluations and adjustments, the continuing partners may decide to adjust their capitals to bring them in line with the new profit sharing ratio. This is an optional step depending on the partnership agreement.

Fourth and finally, settlement of amounts due to the retired partner or deceased partner's executor is made. The retiring/deceased partner's capital account will show the total amount due after all adjustments (revaluation, goodwill, reserves distribution, etc.). This amount is then paid through cash, loan account, or installments as agreed.

The correct sequence is (B), (D), (C), (A).

Correct answer: Option 1