Class 12 Accountancy - CBSE
Reconstitution of a Partnership Firm: Retirement/Death of a Partner
This chapter covers the accounting treatments required when an existing partner retires or dies. It is a crucial part of the reconstitution of a partnership firm. Students will learn how to calculate new profit-sharing ratios, gaining ratios, and treat accumulated profits, losses, and reserves. Special attention is given to the valuation and adjustment of goodwill, revaluation of assets and liabilities, and the computation of the final amount due to the retiring partner or the deceased partner's executors. This is a high-scoring, practical chapter that frequently features comprehensive 6-mark adjustment and ledger-account problems in the CBSE board examinations.
Start Learning FreeKey Concepts
New Profit-Sharing Ratio
The proportion in which the remaining partners will share future profits after a partner retires or dies.
Gaining Ratio
The ratio in which the continuing partners acquire the outgoing partner's share of profit, calculated as New Ratio minus Old Ratio.
Treatment of Goodwill
Compensating the retiring or deceased partner for their share of goodwill by debiting the remaining partners' capital accounts in their gaining ratio.
Revaluation of Assets and Liabilities
Assessing the true current value of assets and liabilities at the time of retirement or death, with the resulting profit or loss transferred to all partners' capital accounts in their old ratio.
Settlement of Amount Due
Paying off the retiring partner immediately in cash or transferring the balance to their loan account to be paid in installments with interest.
Important Formulas
Board Exam Info
In the CBSE Class 12 Accountancy board exam, this chapter typically carries around 6 to 8 marks. Questions usually appear as a full-length 6-mark practical problem involving the preparation of Revaluation Account, Partners' Capital Accounts, and the Balance Sheet of the reconstituted firm, alongside 1-mark or 3-mark questions on calculating gaining ratios or treating goodwill.
Frequently Asked Questions
What is the difference between sacrificing ratio and gaining ratio?
Sacrificing ratio is used during admission when existing partners give up a part of their share to a new partner (Old Ratio - New Ratio). Gaining ratio is used during retirement or death when remaining partners take over the outgoing partner's share (New Ratio - Old Ratio).
How is profit calculated up to the date of death of a partner?
Profit up to the date of death is usually estimated based on the previous year's profit or average profits of past years, or through a turnover/sales-based calculation for the elapsed period.
What happens to the retiring partner's loan account if it is not paid immediately?
If the firm cannot pay the retiring partner immediately, the balance is transferred to the 'Retiring Partner's Loan Account'. It appears as a liability on the balance sheet and carries interest as per the partnership deed or 6% per annum by default.
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