Class 12 Accountancy - BIHAR
Reconstitution of a Partnership Firm: Retirement/Death of a Partner
This chapter covers the accounting treatment and adjustments required when an existing partner retires or passes away in a partnership firm. Students will learn how to calculate new profit-sharing ratios, gaining ratios, and handle the revaluation of assets and liabilities. Crucially, the chapter details the valuation and adjustment of goodwill, calculation of the retiring or deceased partner's share of profits up to the date of death, and the settlement of their dues through a loan account or immediate payment. Mastering this chapter is essential for scoring high marks in the Bihar School Examination Board (BSEB) Class 12 Accountancy exam, as it regularly features comprehensive 6-mark or 8-mark numerical problems.
Start Learning FreeKey Concepts
New Profit-Sharing Ratio
The proportion in which the remaining partners will share future profits after the retirement or death of a partner.
Gaining Ratio
The ratio in which the continuing partners acquire the share of profit from the retiring or deceased partner. Formula: New Ratio minus Old Ratio.
Treatment of Goodwill
Compensating the retiring or deceased partner for their share of goodwill by debiting the capital accounts of gaining partners in their gaining ratio.
Revaluation of Assets and Liabilities
Assessing the true market value of assets and liabilities at the time of reconstitution, with any profit or loss transferred to all partners' capital accounts in their old profit-sharing ratio.
Settlement of Deceased Partner's Dues
Calculating the final amount payable to a deceased partner, which includes capital, reserves, revaluation profit, share of goodwill, and profit up to the date of death, transferred to their executor's account.
Important Formulas
Board Exam Info
In the Bihar (BSEB) Class 12 Accountancy board exam, this chapter typically carries around 10 to 15 marks. Questions commonly include short objective type questions (1 mark), short answer numerical problems (3-4 marks), and a mandatory long-answer numerical question (6-8 marks) involving the preparation of Revaluation Account, Partners' Capital Accounts, and the Balance Sheet of the reconstituted firm.
Frequently Asked Questions
What is the difference between sacrificing ratio and gaining ratio?
Sacrificing ratio is used when a new partner is admitted (Old Ratio minus New Ratio), whereas gaining ratio is used when a partner retires or dies (New Ratio minus Old Ratio).
How is goodwill treated when a partner retires?
Goodwill is adjusted through the capital accounts of the continuing partners. Gaining partners' capital accounts are debited and the retiring partner's capital account is credited with their share of goodwill in the gaining ratio.
What happens to the accumulated profits and losses on a partner's retirement?
All accumulated profits, general reserves, and losses existing in the balance sheet are distributed among all partners (including the retiring/deceased partner) in their old profit-sharing ratio before retirement.
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