Class 12 Accountancy - HARYANA
Reconstitution of a Partnership Firm: Retirement/Death of a Partner
This chapter deals with the accounting treatment and adjustments required when an existing partner decides to retire or passes away during the continuation of the partnership firm. For Haryana Board (BSEH) Class 12 students, mastering this chapter is crucial as it involves calculating new profit-sharing ratios, gaining ratios, revaluation of assets and liabilities, treatment of goodwill, accumulated profits, and the settlement of dues to the retiring or deceased partner's executors. It frequently features high-weightage practical problems in the board examination.
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 by which the continuing partners acquire the share of profit surrendered by the retiring or deceased partner. Formula: New Ratio - Old Ratio.
Treatment of Goodwill
Compensating the retiring or deceased partner for their share of goodwill by debiting the capital accounts of continuing partners in their gaining ratio.
Revaluation of Assets and Liabilities
Adjusting the book values of assets and liabilities to their current market values at the time of retirement or death, with the resulting profit or loss distributed among all partners in the old ratio.
Settlement of Retiring Partner's Dues
Calculating the total amount payable to the retiring partner and paying it off immediately in cash or transferring it to their loan account to be paid in installments.
Important Formulas
Board Exam Info
In the Haryana Board (BSEH) Class 12 Accountancy exam, this chapter typically carries around 6 to 8 marks. Students can expect a mix of objective questions (MCQs/fill-in-the-blanks) and a comprehensive 6-mark practical question 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 at the time of admission when old partners give up a part of their share to a new partner (Old Ratio - New Ratio). Gaining ratio is used at retirement or death when remaining partners take over the retiring partner's share (New Ratio - Old Ratio).
How is the deceased partner's share of profit calculated up to the date of death?
It is calculated either on the basis of time (pro-rata basis using the previous year's profit or average profit) or on the basis of sales turnover up to the date of death.
What happens if the retiring partner's dues are not paid immediately?
The unpaid amount is transferred to the Retiring Partner's Loan Account, which usually carries interest as per the partnership deed or 6% per annum as per the Indian Partnership Act, 1932.
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