NCERT Book Class 12 Accountancy (Part 1) Chapter 3 Reconstitution of a Partnership Firm – Retirement /Death of a Partner

Reconstitution of a Partnership Firm –
Retirement/Death of a Partner 3

LEARNING OBJECTIVES
After studying this chapter
you will be able to:
Y ou have learnt that retirement or death of a
partner also leads to reconstitution of a
partnership firm. On the retirement or death of a
• calculate new profit partner, the existing partnership deed comes to an
sharing ratio and gaining
ratio of the remaining
end, and in its place, a new partnership deed needs
partners after the to be framed whereby, the remaining partners
retirement/death of a continue to do their business on changed terms and
partner; conditions. There is not much difference in the
• describe the accounting
treatment of goodwill in accounting treatment at the time of retirement or in
the event of retirement/ the event of death. In both the cases, we are required
death of a partner; to determine the sum due to the retiring partner (in
• make the necessary entries case of retirement) and to the legal representatives
in respect of unrecorded
assets and liabilities; (in case of deceased partner) after making necessary
• make necessary adjust- adjustments in respect of goodwill, revaluation of a
ment for accumulated assets and liabilities and transfer of accumulated
profits or losses; profits and losses. In addition, we may also have to
• ascertain the retiring/
compute the new profit sharing’s ratio among the
deceased partner claim
against the firm and remaining partners and so also their gaining ratio,
explain the mode of its This covers all these aspects in detail.
settlement;
• prepare the retiring
3.1 Ascertaining the Amount Due to Retiring/
partner’s loan account, if
required; and Deceased Partner
• prepare the deceased
partner’s executor’s
The sum due to the retiring partner (in case of
account in the case of retirement) and to the legal representatives/
death of a partner and the executors (in case of death) includes:
balance sheet of a (i) credit balance of his capital account;
reconstituted firm.
(ii) credit balance of his current account (if any);
(iii) his share of goodwill;
(iv) his share of accumulated profits (reserves);
(v) his share in the gain of revaluation of assets
and liabilities;