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:

(B), (D), (C), (A)

The correct answer is option 1- (B), (D), (C), (A).

(B) Ascertainment of new profit sharing ratio and gaining ratio- We must calculate the new ratio among the remaining partners and determine the gaining ratio to compute goodwill adjustment. 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,

(D) Revaluation of assets and liabilities- 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.

(C) Adjustment of capital, if required-  Adjust the capital of remaining partners based on the new arrangement.

(A) Settlement of the amounts due to retired/deceased partner-  Following the above steps, the capital account of the deceased partner is prepared. This will include calculating their share of profits up to the date of death and adjustments related to goodwill, if applicable. Finally, after preparing the deceased partner's capital account, the amount to be transferred to the deceased partner’s executor is calculated, which may include the share of the deceased partner’s capital and profits. The balance of the capital account is transferred to the executor account which is paid by the firm to the executor of deceased partner.