Class 12 Accountancy - KARNATAKA
Reconstitution of a Partnership Firm: Retirement/Death of a Partner
This chapter covers the accounting treatments required when an existing partner retires or dies, leading to the reconstitution of the partnership firm. Karnataka (KSEEB) Class 12 students will learn how to calculate new profit-sharing ratios and gaining ratios, treat accumulated profits and losses, revalue assets and liabilities, calculate goodwill, and determine the amount due to the retiring or deceased partner. Understanding this chapter is crucial for board exams as it frequently features practical 6-mark and 12-mark comprehensive problems involving capital adjustments and preparation of partner's loan and executor's accounts.
Start Learning FreeKey Concepts
Retirement of a Partner
It refers to a partner voluntarily leaving the firm or retiring due to old age or ill health, resulting in the reconstitution of the partnership while the remaining partners continue business.
Death of a Partner
The cessation of a partnership due to the demise of a partner, requiring the settlement of the deceased partner's legal representatives' claims up to the exact date of death.
Gaining Ratio
The proportion in which the remaining partners acquire the outgoing partner's share of profit. It is 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.
Retiring Partner's Loan Account
When the amount due to a retiring partner is not paid off immediately in cash, it is transferred to their loan account, which carries interest until final settlement.
Executor's Account
An account opened upon a partner's death to transfer the total amount due to the deceased partner, payable to their legal representatives along with profit share up to the date of death.
Important Formulas
Board Exam Info
In the Karnataka (KSEEB) Class 12 Accountancy board exam, this chapter typically carries around 10 to 15 marks. Students can expect one 1-mark or 2-mark theory question, a short practical problem on calculation of ratios or goodwill (6 marks), and majorly a full-length 12-mark question involving 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 during admission when existing partners give up a part of their share to the new partner (Old Ratio - New Ratio). Gaining ratio is used during retirement or death when remaining partners acquire the outgoing partner's share (New Ratio - Old Ratio).
How is the profit calculated up to the date of death of a partner?
Profit up to the date of death is usually estimated based on time (fraction of the year) using either the previous year's profit or the average profit of past years, and sometimes based on sales turnover.
What happens to the accumulated reserves when a partner retires?
All accumulated profits, general reserves, and accumulated losses existing in the balance sheet are distributed among all partners (including the retiring partner) in their old profit-sharing ratio before retirement.
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