Class 12 Accountancy - TAMILNADU
Reconstitution of a Partnership Firm: Retirement/Death of a Partner
This chapter deals with the reconstitution of a partnership firm when an existing partner decides to retire or passes away. For Tamil Nadu Samacheer Kalvi Class 12 board exams, this is a crucial scoring area. You will learn how to calculate new profit-sharing ratios, gaining ratios, and treat accumulated profits, losses, and reserves. It also covers the revaluation of assets and liabilities, determination of the retiring or deceased partner's share of goodwill and profit up to the date of death, and the final settlement of their account. Mastery of journal entries and ledger accounts is essential.
Start Learning FreeKey Concepts
Gaining Ratio
The ratio in which the remaining partners acquire the share of profit from 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 credited to them and debited to the remaining partners' capital accounts in their gaining ratio.
Revaluation of Assets and Liabilities
A Revaluation Account is prepared to record the increase or decrease in the value of assets and liabilities so that the retiring partner gets their fair share of revaluation profit or loss.
Settlement of Retiring Partner's Account
The amount due to the retiring partner is transferred to their loan account if not paid immediately, bearing interest as per the partnership deed or law.
Deceased Partner's Share of Profit
The executors of a deceased partner are entitled to a share of profit earned by the firm from the beginning of the accounting year till the date of death, calculated on time or turnover basis.
Important Formulas
Board Exam Info
In the Tamil Nadu Samacheer Kalvi Class 12 Accountancy board exam, this chapter frequently features high-weightage practical problems (usually 5-mark and 10-mark questions). Students are commonly asked to pass journal entries and prepare Revaluation Accounts, 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 at the time of admission of a partner when old partners give up a part of their share. Gaining ratio is used at the time of retirement or death when remaining partners take over the retiring partner's share.
How is a 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 profit or average profit for the elapsed period) or on the basis of sales/turnover for the current period up to the date of death.
What happens if the retiring partner's dues are not paid immediately?
The amount is transferred to the Retiring Partner's Loan Account. The firm must pay interest on this loan as specified in the partnership agreement, or 6% per annum if no agreement exists.
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