Class 12 Accountancy - KERALA
Reconstitution of a Partnership Firm: Retirement/Death of a Partner
This chapter covers the accounting treatments required when an existing partner retires or passes away in a partnership firm. For Kerala (SCERT) Class 12 board exams, this is a high-scoring and crucial area. You will learn how to calculate new profit-sharing ratios, gaining ratios, revalue assets and liabilities, treat accumulated profits and reserves, determine the retiring or deceased partner's share of goodwill, and compute the final amount payable to them or their legal representatives, including settlement through loan accounts.
Start Learning FreeKey Concepts
Gaining Ratio
The ratio in which the remaining partners acquire the share of profit surrendered by the retiring or deceased partner. It is calculated as New Ratio minus Old Ratio.
Treatment of Goodwill
Goodwill is valued upon retirement or death, and the retiring partner's share is debited to the remaining partners' capital accounts in their gaining ratio and credited to the retiring partner's capital account.
Revaluation of Assets and Liabilities
Assets and liabilities are revalued at the time of retirement or death to reflect their true current values, and any profit or loss is transferred to all partners' capital accounts in their old profit-sharing ratio.
Settlement of Retiring Partner's Due
The net amount due to the retiring partner is paid off immediately in cash, or if the firm lacks funds, it is transferred to their Loan Account to be paid later with interest.
Deceased Partner's Share of Profit
The legal representatives of a deceased partner are entitled to their share of profits earned from the beginning of the accounting year up to the exact date of death, calculated on a time or turnover basis.
Important Formulas
Board Exam Info
In the Kerala (SCERT) Class 12 Accountancy board examination, this chapter typically carries around 8 to 12 marks. Common question types include 2-mark calculations of gaining ratios, 4-mark journal entries for goodwill and revaluation, and comprehensive 8-mark questions involving the preparation of Revaluation Account, Partners' Capital Accounts, and the Balance Sheet of the reconstituted firm.
Frequently Asked Questions
What is the main difference between sacrifice ratio and gaining ratio?
Sacrifice 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 the deceased partner's share of profit calculated if the accounting year ends midway?
It is calculated either on the basis of time (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 until the full and final settlement is made.
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