Which combination of statements are correct about Death of a partner-

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

(B) Preparation of Realization Account

(C) Revaluation of assets and liabilities

(D) Adjustment of capital, if required

Choose the correct answer from the options given below:

(A), (C) and (D) only

The correct answer is option 3- (A), (C) and (D) only.

(A) Ascertainment of new profit sharing ratio and gaining ratio- IT IS TRUE  New profit sharing ratio is the ratio in which the remaining partners will share future profits after the retirement or death of any partner. The new share of each of the remaining partner will consist of his own share in the firm plus the share acquired from the retiring /deceased partner. The ratio in which the continuing partners have acquired the share from the retiring/deceased partner is called the gaining ratio. Normally, the continuing partners acquire the share of retiring/deceased partner in their old profit sharing ratio,

(B) Preparation of Realization Account- IT IS NOT TRUE as realisation account is prepared at the time of dissolution of partnership firm. The Realization Account is created to close the books of account and the profit or loss arising on realisation of its assets and discharge of liabilities is to be computed. Realisation Account is prepared to ascertain the net effect (profit or loss) of realisation of assets and payment of liabilities which may be is transferred to partner’s capital accounts in their profit sharing ratio.

(C) Revaluation of assets and liabilities- IT IS TRUE.  At the time of retirement or death of a partner there may be some assets which may not have been shown at their current values. Similarly, there may be certain liabilities which have been shown at a value different from the obligation to be met by the firm. Not only that, there may be some unrecorded assets and liabilities which need to be brought into books. A Revaluation Account is prepared in order to ascertain net gain (loss) on revaluation of assets and/or liabilities and bringing unrecorded items into firm’s books and the same is transferred to the capital account of all partners including retiring/deceased partners in their old profit sharing ratio.

(D) Adjustment of capital, if required- IT IS TRUE.  At the time of retirement or death of a partner, the remaining partners may decide to adjust their capital contributions in their profit sharing ratio. In such a situation, the sum of balances in the capitals of continuing partners may be treated as the total capital of the new firm, unless specified otherwise. Then, to ascertain the new capital of the continuing partners, the total capital of the firm is divided amongst the remaining partners as per the new profit sharing ratio, and the excess or deficiency of capital in the individual capital account’s may be worked out.

Thus, statements (A), (C) and (D) are true.