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

Step 1: Understanding the Concept:
Sometimes, partners prefer not to alter the historical values (book values) of assets and liabilities in the books even if their market values have changed. In such cases, an adjustment entry is passed through the capital accounts.
Step 2: Detailed Explanation:
If there is a revaluation gain, the deceased partner is entitled to their share. Since the assets are not actually being revalued in the books, the gaining partners (who will benefit from the future appreciation) must pay the deceased partner now.
The adjustment entry is:
\[ \text{Gaining Partners' Capital A/c Dr. (in Gaining Ratio)} \] \[ \text{To Deceased/Retiring Partner's Capital A/c (with their share of gain)} \]
This entry credits the deceased partner and debits the gaining partners in their gaining ratio.
Step 3: Final Answer:
Deceased partner is credited; Gaining partners are debited in Gaining Ratio.