On the retirement of an existing partner, an increase in the value of a liability will be credited to:-
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Liability Account
On retirement, assets and liabilities are revalued through the Revaluation Account. An increase in a liability is a loss to the firm, so the Revaluation Account is debited and the liability account is credited, raising it to its new amount: Revaluation A/c Dr., To Liabilities A/c.
Why the other options are incorrect
Option (1) Retiring Partner Capital Account — Incorrect. The retiring partner bears only his share of the net revaluation loss, when the Revaluation Account is closed; the increase itself is not credited to him.
Option (2) Profit and Loss Adjustment Account — Incorrect. That account is used to correct past omissions (such as omitted interest on capital), not for revaluation; and the increase would be debited, not credited, to a gain-or-loss account.
Option (4) Realization Account — Incorrect. A Realisation Account is opened only on dissolution of the firm.
NCERT (2026-27 edition):
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