Class 12 Accountancy: Retirement and Death of a Partner

On retirement or death the continuing partners gain the outgoing partner's share. They compensate him for goodwill and settle what the firm owes him.

Gaining ratio

Gaining ratio = New ratio − Old ratio. If the new ratio is not given, continuing partners keep their old ratio between themselves.

Goodwill

Revaluation, reserves and accumulated profits

Shared by all partners, including the outgoing one, in the old ratio.

Deceased partner's share of profit

The deceased partner is entitled to his share of profit from the last balance sheet date to the date of death:

• Time basis: last year's (or average) profit × period up to death ÷ 12 × his share.
• Turnover (sales) basis: profit as a percentage of sales × sales up to death × his share.

Entry: Profit and Loss Suspense A/c Dr. To Deceased Partner's Capital A/c.

Settlement

• Retiring partner: amount due is paid in cash or transferred to the Retiring Partner's Loan Account, often repaid in instalments with interest.
• Deceased partner: the balance is transferred to the Executor's Account and paid to the executors.

Recorded lectures for this chapter

14 lectures (4 h 52 min) by Ronak Dugar in Class 12 Accountancy Book 1: Accounting for Partnership Firms. Enrolled students watch them in the student portal.