Reconstitution of Partnership : Retirement of a Partner
ICSE · Class 12 · Accountancy
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What does retirement of a partner mean?
Answer
Retirement of a partner means to discontinue to be a partner in the firm. The leaving partner is called the retiring or outgoing partner. After retirement, the old partnership ends, but the firm conti…
What happens to the firm when a partner retires?
Answer
The old partnership comes to an end, but the firm continues. A new partnership arises among the remaining partners. This is called reconstitution of the firm.
Under what legal conditions may a partner retire?
Answer
A partner may retire: (1) with the consent of all the other partners, (2) in accordance with an express agreement, or (3) in a partnership at will, by giving written notice to all the other partners o…
Is a retiring partner liable for future acts of the firm?
Answer
A retiring partner is not liable for acts of the firm after retirement. However, he continues to be liable to third parties for firm acts until a public notice of retirement is given. A sleeping partn…
Why is the new profit sharing ratio of continuing partners calculated on retirement?
Answer
Because the remaining partners acquire the retiring partner’s share of profit. Their future profit shares change, so the new ratio must be worked out after retirement.
State the formula for the new profit sharing ratio of continuing partners.
Answer
New share = Old share + Acquired Gaining share. The new share is the original share of a continuing partner plus the share acquired from the retiring partner.
What is the gaining ratio? Give its formula.
Answer
The gaining ratio is the ratio in which the continuing partners acquire the share of the outgoing partner. Formula: Gaining ratio = New ratio - Old ratio.
How is the gaining ratio different from the sacrificing ratio?
Answer
Gaining ratio applies at retirement and is calculated as New ratio - Old ratio. Sacrificing ratio applies at admission of a new partner and is calculated as Old ratio - New ratio. Both are mirror-imag…
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