On the death of an existing partner, in case the value of a Liability…

The correct answer is Option (4) → Liability Account

On the death or retirement of a partner, assets and liabilities are revalued through the Revaluation Account, also called the Profit and Loss Adjustment Account. A fall in a liability is a gain to the firm: the liability account is debited to bring it down to its new value, and the Revaluation Account is credited.

Option (1) Deceased Partner Capital Account — Incorrect. The deceased partner’s capital account gets only his share of the net revaluation profit or loss, when the Revaluation Account is closed, not the change in each liability.

Option (2) Profit and Loss Adjustment Account — Incorrect. This is the Revaluation Account; a decrease in a liability is a gain, so this account is credited, not debited.

Option (3) Realization Account — Incorrect. The Realisation Account is opened only on dissolution of the firm, to sell the assets and pay the liabilities; it has no place on death of a partner.