Question

When partners decide not to revalue assets and liabilities at the time of death of a partner, Deceased Partner’s Capital Account is credited with revaluation gain and Gaining Partners' Capital Accounts are adjusted in:

• A. Old ratio
• B. Sacrificing ratio
• C. Gaining ratio
• D. New profit-sharing ratio

Hint:

Retirement/death adjustments → always use gaining ratio for remaining partners.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
When assets are not revalued in the books, the retiring or deceased partner is still entitled to their share of the increase in value. To effect this without changing the book values, the remaining partners must compensate the outgoing partner for their share of the hidden gains.
Step 2: Key Formula or Approach:
The adjustment is made by debiting the gaining partners and crediting the outgoing/deceased partner.
\[ \text{Adjustment} = \text{Partner's share of gain} \times \text{Gaining Ratio} \]
Step 3: Detailed Explanation:

- Because the remaining partners will benefit from the higher value of assets (or lower value of liabilities) in the future, they "gain" the deceased partner's share.
- Therefore, they must compensate the deceased partner by adjusting their capital accounts in the ratio in which they gain.
Step 4: Final Answer:
The adjustment is made in the Gaining ratio (C).