Class 12 Accountancy - RAJASTHAN
Reconstitution of a Partnership Firm: Retirement/Death of a Partner
This chapter covers the accounting treatments required when an existing partner decides to retire or passes away during the continuation of a partnership firm. Students will learn how to calculate new profit-sharing ratios, gaining ratios, and treat accumulated profits and losses. A major focus is placed on the revaluation of assets and liabilities, calculation and adjustment of goodwill, and settlement of the retiring or deceased partner's capital account. Mastering these concepts is crucial for scoring high in the Rajasthan Board (RBSE) Class 12 Accountancy examination, as comprehensive 6 to 8-mark numerical problems from this chapter frequently appear in the board papers.
Start Learning FreeKey Concepts
New Profit Sharing Ratio
The proportion in which the remaining partners will share future profits and losses after a partner's retirement or death.
Gaining Ratio
The ratio in which the continuing partners acquire the outgoing partner's share of profit, 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 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 reconstitution, transferring the net gain or loss to all partners' capital accounts.
Settlement of Retiring Partner's Dues
Transferring the balance of the retiring partner's capital account to their loan account if not paid off immediately in cash.
Important Formulas
Board Exam Info
In the Rajasthan Board (RBSE) Class 12 Accountancy exam, this chapter typically carries around 6 to 8 marks. Questions usually include a comprehensive 6-mark long-answer numerical problem involving Revaluation Account, Partner's Capital Accounts, and the final Balance Sheet, along with 1 or 2 objective or short-answer questions on calculation of gaining and new ratios.
Frequently Asked Questions
What is the difference between sacrificing ratio and gaining ratio?
Sacrificing ratio is used at the time of admission of a partner when old partners give up a part of their share. Gaining ratio is used at retirement or death when remaining partners acquire the outgoing partner's share.
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 previous year's profit or average profit) or on the basis of sales/turnover.
What happens to the accumulated reserves and profits on a partner's retirement?
Accumulated profits, reserves, and 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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