Identify the correct sequence of steps to be followed when accounting for the retirement of a partner:(A) New Balance Sheet after Retirement(B) Transferring the balance to the Retiring Partner's Loan Account(C) Calculation of the Gaining/Sacrificing Ratio(D) Partners' Capital Account adjustments(E) Preparation of the Revaluation AccountChoose the correct answer from the options given below:
- A(C), (D), (E), (A), (B)
- B(C), (E), (D), (B), (A)
- C(A), (B), (C), (D), (E)
- D(C), (E), (B), (A), (D)
Solution & Step-by-step Explanation
The logical sequence for accounting adjustments upon retirement is:Determine how profit shares change: Calculation of Gaining/Sacrificing Ratio (C).Revalue assets and liabilities: Preparation of Revaluation Account (E).Update partner balances: Partners' Capital Account adjustments (D) (incorporating reserves, revaluation profit/loss, and goodwill).Settle the retiring partner's dues: Transferring the balance to Retiring Partner's Loan Account (B).Record the updated financial position of the reconstituted firm: New Balance Sheet after Retirement (A).Thus, the correct sequence is (C), (E), (D), (B), (A).