Arrange the following steps in correct sequence in case of retirement of a partner:

(A) Adjustment of Capital, if required

(B) Ascertain new profit sharing ratio and gaining ratio

(C) Distribution of Revaluation/Accumulated profits and losses

(D) Undertake revaluation of assets and liabilities

Choose the correct answer from the options given below:

When a partner retires, the following logical sequence must be followed:

Step 1: Ascertain new profit sharing ratio and gaining ratio (B)

Before any adjustments, we must determine how the remaining partners will share profits going forward and calculate the gaining ratio. The gaining ratio shows what portion of the retiring partner's share each continuing partner acquires. This is: Gaining Ratio = New Ratio - Old Ratio

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Step 2: Undertake revaluation of assets and liabilities (D)

Assets and liabilities are revalued to reflect their current market values. A Revaluation Account is prepared to record increases or decreases in asset values and liability values. This ensures the retiring partner gets their fair share based on the true worth of the firm.

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Step 3: Distribution of Revaluation/Accumulated profits and losses (C)

The profit or loss from revaluation and any accumulated profits (like reserves, undistributed profits) or losses are distributed among all partners including the retiring partner in their old profit sharing ratio. These amounts are credited/debited to their capital accounts.

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Step 4: Adjustment of Capital, if required (A)

Finally, capital accounts are adjusted. This includes:

• Treatment of goodwill (compensating continuing partners for the share they gain)
• Settlement of the retiring partner's dues
• Making continuing partners' capitals proportionate to their new profit sharing ratio, if needed

Correct Answer: Option 3 - (B), (D), (C), (A)