Matching Partnership Accounting Concepts and Events

This question asks us to match specific accounting concepts or accounts used in partnership firms with the particular events or situations where they are typically applied. Understanding these concepts is crucial for accounting for changes in a partnership.

Analyzing the Matching Pairs

Let's look at each item in List-I and determine its connection to List-II:

• (A) Gaining Ratio: The Gaining Ratio is calculated when a partner retires or dies. The continuing partners gain a share of the outgoing partner's profit share. They compensate the outgoing partner based on this ratio (often combined with the new profit-sharing ratio). This concept is primarily associated with the retirement of a partner or the death of a partner. From the options provided in List-II, it directly relates to (II) Retirement of a partner.
• (B) Sacrificing Ratio: The Sacrificing Ratio is calculated when a new partner is admitted to the firm. The old partners give up (sacrifice) a portion of their future profit share to the new partner. This ratio helps determine how the premium for goodwill brought by the new partner is distributed among the old partners. This concept is directly associated with the admission of a partner. From List-II, this matches (I) Admission of a partner.
• (C) Realisation Account: The Realisation Account is prepared when a partnership firm is dissolved. Its purpose is to record the sale of assets, payment of liabilities, and the expenses of dissolution, ultimately calculating the profit or loss arising from the winding up of the firm. This account is central to the process of dissolution of a partnership firm. From List-II, this matches (IV) Dissolution of Partnership firm.
• (D) Profit and Loss Suspense Account: This account is often used in the event of the death of a partner. When a partner dies during the accounting period, their share of profit or loss from the last balance sheet date up to the date of death needs to be calculated and credited or debited to their capital account. This interim profit or loss is frequently routed through a Profit and Loss Suspense Account. From List-II, this matches (III) Death of a partner.

Confirming the Matches

Based on the analysis, the correct pairings are:

• A – (II) Retirement of a partner
• B – (I) Admission of a partner
• C – (IV) Dissolution of Partnership firm
• D – (III) Death of a partner

Let's look at the provided options and find the one that matches these pairings.

Option 3 states: A-II, B-I, C-IV, D-III.

This matches our analysis perfectly.

Final Answer Derivation

The correct matching is:

• Gaining Ratio is associated with Retirement of a partner (A-II).
• Sacrificing Ratio is associated with Admission of a partner (B-I).
• Realisation Account is associated with Dissolution of Partnership firm (C-IV).
• Profit and Loss Suspense Account is associated with Death of a partner (D-III).

Therefore, the correct combination is A-II, B-I, C-IV, D-III.

Revision Table: Key Partnership Accounting Events

Additional Information: Detailed Accounting Concepts

Gaining Ratio Calculation

The Gaining Ratio is calculated as:

\(\text{Gaining Ratio} = \text{New Share} - \text{Old Share}\)

This is calculated for the continuing partners. A positive result indicates a gain.

Sacrificing Ratio Calculation

The Sacrificing Ratio is calculated as:

\(\text{Sacrificing Ratio} = \text{Old Share} - \text{New Share}\)

This is calculated for the old partners upon admission of a new partner. A positive result indicates a sacrifice.

Purpose of Realisation Account

The Realisation Account is a nominal account. All assets (except Cash/Bank and fictitious assets) are transferred to its debit side, and all external liabilities are transferred to its credit side. Assets realised are credited, and liabilities paid are debited. The balance of this account represents the profit or loss on realisation, which is transferred to partners' capital accounts.

Profit and Loss Suspense Account in Detail

When a partner dies, the firm continues. The deceased partner is entitled to their share of profits up to the date of death. Since final accounts are usually prepared annually, an estimated profit or loss is calculated for the period from the last balance sheet date to the death date. This share is credited (for profit) or debited (for loss) to the deceased partner's capital account, often by debiting or crediting a Profit and Loss Suspense Account, respectively. This suspense account is then closed by transferring its balance to the Profit and Loss Appropriation Account or directly to the remaining partners' capital accounts in their gaining ratio (depending on the method followed).