If profit was understated and the correction increases profit, what happens in the partners’ accounts?

Correct answer: Credit in the profit-sharing ratio

The governing concept is allocation of a corrected partnership profit among the partners. When the originally reported profit was understated, the correction creates an additional profit. That additional profit belongs to the partners according to the applicable profit-sharing ratio, so each partner’s capital or current account is credited with the appropriate share. For example, if the increase is Rs 10,000 and the ratio is 3:2, the partners receive credits of Rs 6,000 and Rs 4,000. A debit would reduce their claims, no entry would leave the additional profit unallocated, and closing all accounts is unrelated. Therefore option A correctly states the treatment.