Class 12 Accountancy - ANDHRA-PRADESH
Reconstitution of a Partnership Firm: Retirement/Death of a Partner
The chapter 'Reconstitution of a Partnership Firm: Retirement/Death of a Partner' in Class 12 Accountancy under the Andhra Pradesh Board (BSEAP) deals with the accounting treatment when an existing partner leaves the firm due to retirement or death. Students will learn how to calculate new profit-sharing ratios, gaining ratios, treat goodwill, revalue assets and liabilities, accumulate profits and reserves, and settle the final dues of the retiring or deceased partner. This chapter is extremely crucial for the board examinations as it frequently features comprehensive 8-mark or 6-mark practical problems.
Start Learning FreeKey Concepts
New Profit-Sharing Ratio
The proportion in which the remaining partners will share future profits and losses after a partner retires or dies.
Gaining Ratio
The ratio in which the continuing partners acquire the share of profit from the retiring or deceased partner. Formula: Gaining Ratio = New Ratio - Old Ratio.
Treatment of Goodwill
Valuing and adjusting goodwill by debiting the continuing partners' capital accounts in their gaining ratio and crediting the retiring/deceased partner's capital account by their share.
Revaluation of Assets and Liabilities
Assessing the true current values of assets and liabilities at the time of retirement or death, with the resulting profit or loss transferred to all partners' capital accounts in old ratio.
Settlement of Retiring Partner's Dues
Calculating the total amount payable to a retiring partner and settling it either immediately in cash or transferring it to their loan account to be paid later with interest.
Important Formulas
Board Exam Info
In the Andhra Pradesh (BSEAP) Class 12 Accountancy board exam, this chapter typically carries around 10 to 12 marks. Students can expect one long-answer comprehensive problem carrying 8 marks involving Revaluation Account, Partners' Capital Accounts, and the Balance Sheet, alongside 1 or 2 short-answer questions (2 or 4 marks) on calculation of gaining ratio or treatment of goodwill.
Frequently Asked Questions
How is the gaining ratio different from the sacrificing ratio?
Sacrificing ratio is used when a new partner is admitted (Old Ratio - New Ratio), whereas gaining ratio is used when a partner retires or dies (New Ratio - Old Ratio) to show how much extra share the remaining partners get.
What happens to the accumulated reserves and profits upon a partner's retirement?
All accumulated profits, general reserves, and accumulated losses existing in the balance sheet are distributed among all partners (including the retiring or deceased partner) in their old profit-sharing ratio before retirement.
How is the final amount due to a deceased partner handled if it cannot be paid immediately?
The amount due is transferred to the Deceased Partner's Executor's Account, which will be shown as a liability in the new balance sheet until it is fully paid off along with any applicable interest.
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