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Class 12 Reconstitution of a Partnership Firm – Retirement/Death of a Partner: cheat sheet
CBSE Accountancy. A partner leaves: new and gaining ratios, the leaving partner’s goodwill, revaluation and reserves, profit to the date of death, the amount due and instalments.
Key ideas
- The continuing partners gain the leaving partner’s share: each one’s gain is new share − old share.
- The leaving partner’s share of goodwill is credited to that partner’s capital and debited to the continuing partners in the gaining ratio.
- Reserves, accumulated profits and the revaluation result are shared by all the partners, the leaving one included, in the old ratio.
- Profit to the date of death is found on time basis (last year’s profit for the months passed since 1 April) or on sales basis (the profit rate on sales to that date).
- The leaving partner’s capital is credited with goodwill, reserves, revaluation profit, profit to date and interest on capital, and debited with drawings and losses.
- The amount due is paid to the retiring partner or the executors of a deceased one, or moved to a loan account and paid in instalments with interest on the unpaid balance.
Remember
| New share | old share + share gained |
| Gaining ratio | new share − old share, for each continuing partner |
| Leaving partner’s goodwill | firm’s goodwill × that partner’s share |
| Debit to a continuing partner | leaving partner’s goodwill × own gain ÷ total gain |
| Profit to death, time basis | last year’s profit × months passed ÷ 12 × share |
| Profit to death, sales basis | sales to that date × (last year’s profit ÷ last year’s sales) × share |
| Interest on capital to that date | capital × rate ÷ 100 × months ÷ 12 |
| An instalment | amount due ÷ number of instalments + interest on the balance unpaid |
Watch out
- Debiting goodwill to the continuing partners in the old ratio instead of the gaining ratio.
- Counting months from 1 January instead of 1 April.
- Charging interest on the whole original amount with every instalment.
Worked example
Rahul, Vikram and Isha share profits 3 : 2 : 2. Isha retires on 31 May. Isha’s capital is ₹1,90,000 and drawings this year are ₹9,000. The general reserve is ₹56,000, revaluation shows a loss of ₹7,000, goodwill is valued at ₹56,000, and the share of profit to the date of retirement is based on last year’s profit of ₹3,36,000 (time basis). Find the amount due to Isha.
Working: ₹1,90,000 + reserve ₹16,000 − revaluation ₹2,000 + goodwill ₹16,000 + profit ₹16,000 (₹3,36,000 × 2/12 × 2/7) − drawings ₹9,000
Answer: ₹2,27,000
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