Class 12 Accountancy - MP
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. Students will learn how to calculate new profit-sharing ratios, gaining ratios, and treat accumulated profits, losses, and reserves. A major focus is placed on the revaluation of assets and liabilities, calculation and adjustment of goodwill, and the preparation of the retiring or deceased partner's capital account and executors' account. This is a high-scoring and crucial chapter for the MPBSE Class 12 Accountancy board exam, frequently featuring 6-mark practical problems.
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.
Treatment of Goodwill
Compensating the retiring 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, transferring any profit or loss to all partners' capital accounts.
Settlement of Amount Due
Calculating the total amount payable to the retiring partner and transferring it to their loan account or paying it off immediately.
Deceased Partner's Share of Profit
Calculating and crediting the deceased partner's share of profit from the beginning of the accounting year up to the date of death, based on time or turnover.
Important Formulas
Board Exam Info
In the MPBSE Class 12 Accountancy board examination, this chapter typically carries around 6 to 8 marks. Students can expect one objective-type question (fill in the blanks or multiple choice) and one major 6-mark numerical problem 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 when a new partner is admitted (Old Ratio - New Ratio), whereas gaining ratio is used when a partner retires or dies (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 (using the previous year's or average profit) or on the basis of sales/turnover for the elapsed period of the current year.
What happens to the retiring partner's loan account if it is not paid immediately?
It is transferred to the 'Retiring Partner's Loan Account' and appears as a liability on the new Balance Sheet, carrying interest as per the partnership deed or law.
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