Match the LIST-I with LIST-IILIST-ILIST-IIA.Preparation of Profit & L…

The correct answer is Option (1) → A-IV, B-I, C-II, D-III

A firm is reconstituted whenever the agreement among its partners changes: a partner joins, a partner retires or dies, or the partners change their ratio. Each description in List-I points to one of these.

(A) Preparation of Profit & Loss Suspense A/c — this matches (IV) Death of a partner. A partner can die on any day of the year, and the books are not closed on that day, so his share of profit or loss from the last balance sheet to the date of death is brought in through a Profit & Loss Suspense A/c.

(B) When firm requires additional capital or managerial help or both for the expansion of its business — this matches (I) Admission of a partner. A new partner is brought in to add his capital or skill to the firm.

(C) This happens on account of a change in the existing partners’ role in the firm. — this matches (II) Change in the existing agreement. The partners stay the same; only their profit sharing ratio changes, for example when one partner takes a smaller part in the business.

(D) It means withdrawal by a partner from the business of the firm which may be due to his bad health, old age or change in business interests. — this matches (III) Retirement of an existing partner. The partner leaves by choice and the others carry on.

Note: Item (A) can be matched with both (III) Retirement of an existing partner and (IV) Death of a partner, because a Profit & Loss Suspense A/c is prepared in both cases for the profit or loss of the period up to the day the partner leaves. Item (D) fits only (III), so (A) can only go with (IV), and Option (1) is the only option that makes this pairing.