Class 12 Accountancy - ISC
Retirement and Death of a Partner
The chapter 'Retirement and Death of a Partner' in Class 12 ISC Accountancy deals with the financial adjustments required when a partner leaves the firm due to retirement or passes away. It covers the calculation of new profit-sharing ratios, gaining ratios, and the valuation and treatment of goodwill. Students will learn how to revalue assets and liabilities, distribute accumulated profits and reserves, and determine the amount due to the retiring partner or the deceased partner's executor. This chapter is vital for board exams as it frequently appears as a full-length 6 to 8-mark numerical question.
Start Learning FreeKey Concepts
Gaining Ratio
The proportion in which the remaining partners acquire the share of profit relinquished by the retiring or deceased partner.
Treatment of Goodwill
Goodwill is valued and adjusted by debiting the gaining partners' capital accounts in their gaining ratio and crediting the retiring or deceased partner's capital account.
Revaluation of Assets and Liabilities
Assets and liabilities are revalued at the time of retirement or death, and the resulting profit or loss is distributed among all partners in their old profit-sharing ratio.
Executor's Account
When a partner dies, the total amount due to them is transferred to an Executor's Account, which includes their share of capital, reserves, revaluation profit, and profit up to the date of death.
Retiring Partner's Loan Account
If the firm cannot pay the retiring partner's dues immediately in cash, the balance is transferred to their loan account, which usually carries an agreed rate of interest.
Important Formulas
Board Exam Info
In the ISC Class 12 Accountancy paper, this chapter typically carries around 6 to 10 marks. Questions usually appear as long-form practical problems involving the preparation of Revaluation Account, Partners' Capital Accounts, and the Balance Sheet of the reconstituted firm, often with an internal choice from Admission of a Partner.
Frequently Asked Questions
How is the gaining ratio different from the sacrificing ratio?
The sacrificing ratio is used during a partner's admission to calculate the share given up by old partners, whereas the gaining ratio is used during retirement or death to calculate the extra share acquired by remaining partners.
What happens if the deceased partner's executor account is not settled immediately?
If the amount due to the deceased partner is not paid immediately, it is transferred to the Deceased Partner's Executor's Account as a liability. As per the Indian Partnership Act, the executor can claim either interest at 6% per annum on the unpaid amount or a share of profits earned using that unpaid amount.
How do we calculate profit up to the date of death?
Profit up to the date of death is usually calculated based on time (fraction of the year) using either the time-basis method (taking the previous year's or average profit) or the turnover-basis method (using the sales up to the date of death).
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