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:
Answer & explanation
Correct answer: option 3
The correct answer is option 3- (B), (D), (C), (A).
The correct sequence of steps in case of retirement of a partner-
(B) Ascertain new profit sharing ratio and gaining ratio- First, we must calculate the new ratio among the remaining partners and determine the gaining ratio to compute goodwill adjustment.
(D) Undertake revaluation of assets and liabilities- Next, revalue the assets and liabilities to reflect current values.
(C) Distribution of Revaluation/Accumulated profits and losses- After revaluation, distribute any profit or loss from it and from accumulated reserves.
(A) Adjustment of Capital, if required- Finally, adjust the capital of remaining partners based on the new arrangement.