Question

When partners decide not to affect the book value of assets and liabilities, Deceased Partner's Capital Account is _____ with the net effect of revaluation gain for his share and Gaining Partner's Capital Accounts are _____ in their _____.

• A. credited; debited; Old Profit-sharing Ratio
• B. debited; credited; New Profit-sharing Ratio
• C. credited; debited; Gaining Ratio
• D. debited; credited; Sacrificing Ratio

Hint:

If book values are not changed but revaluation profit is to be adjusted: \[ \boxed{ \text{Credit deceased/retiring partner and debit gaining partners in gaining ratio} } \] This ensures fair compensation without altering balance sheet values.

Answer 1

The Correct Option is C

Concept: Sometimes, at the time of death or retirement of a partner, the partners decide:
• not to change the book values of assets and liabilities,
• but still give the retiring/deceased partner his share of revaluation profit or loss. In such cases:
• Memorandum Revaluation Account is prepared,
• or adjustment entry is passed without changing actual asset values. The deceased partner must receive his share of hidden profit or appreciation. Therefore:
• Deceased Partner's Capital Account is credited,
• and gaining partners compensate him. The compensation burden is borne by the partners who gain from his sacrifice. Hence adjustment is made in: \[ \text{Gaining Ratio} \]

Step 1: Understanding why deceased partner is credited. Suppose assets have appreciated. The deceased partner is entitled to his share in this appreciation because:
• the increase in asset value arose before his death,
• therefore it a profit belonging partly to him. Hence: \[ \text{Deceased Partner's Capital A/c is credited} \]

Step 2: Who bears this adjustment? After death, continuing partners enjoy the increased future benefit. Therefore:
• partners who gain in future profit-sharing ratio,
• should compensate the deceased partner. Thus: \[ \text{Gaining Partners' Capital Accounts are debited} \]

Step 3: Basis of adjustment. The adjustment is made according to: \[ \text{Gaining Ratio} \] because only the partners who gain extra share should bear the compensation.

Step 4: Evaluating all options. Option (A): \[ \text{credited; debited; Old Ratio} \] Incorrect because adjustment is not in old ratio. Option (B): \[ \text{debited; credited; New Ratio} \] Incorrect because deceased partner should receive benefit, not loss. Option (C): \[ \text{credited; debited; Gaining Ratio} \] Exactly correct. Option (D): \[ \text{debited; credited; Sacrificing Ratio} \] Incorrect because gaining partners compensate the deceased partner. Final Conclusion: Therefore: \[ \boxed{ \text{Deceased Partner's Capital A/c is credited and Gaining Partners' Capital A/cs are debited in gaining ratio} } \] Hence, the correct answer is: \[ \boxed{\text{(C)}} \]