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Revision Notes

Reconstitution of Partnership : Retirement of a Partner

ICSE · Class 12 · Accountancy

Quick revision notes for Reconstitution of Partnership : Retirement of a Partner — ICSE Class 12 Accountancy. Key concepts, formulas, and definitions for last-minute revision.

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Key Topics to Revise

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I. New Profit Sharing Ratio of Continuing Partners

  • New profit sharing ratio is the ratio in which remaining partners will share profits after the retirement of a partner.
  • New Share = Old Share + Acquired Gaining Share
  • Case 1: If nothing is mentioned about new ratio — simply cancel the retiring partner's share from the old ratio. The remaining partners' old ratio becomes the new ratio.
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II. Gaining Ratio of Continuing Partners

  • Gaining Ratio is the ratio in which the continuing partners have acquired the share of the retiring/deceased partner.
  • Formula: Gaining Ratio = New Ratio - Old Ratio
  • Case 1: New ratio not given — gaining ratio = old ratio of remaining partners.
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III. Accounting Treatment of Goodwill

  • A retiring partner is entitled to his share of goodwill because the firm's goodwill was built by all partners including him.
  • As per Accounting Standard 26, only purchased goodwill can be recorded. Therefore, goodwill account cannot be raised in the books.
  • Adjustment is done through capital accounts: Gaining partners' capital accounts are debited in gaining ratio, and retiring partner's capital account is credited.
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IV. Accounting Treatment of Revaluation of Assets and Liabilities

  • At the time of retirement, assets and liabilities are revalued so that the retiring partner gets his fair share.
  • A Revaluation Account (also called Profit and Loss Adjustment Account) is prepared.
  • Increase in asset value / Decrease in liability value → Credit side of Revaluation Account (gain).

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Full Notes

Key Concepts

Retirement occurs when a partner leavesWhen a partner retiresThe gaining ratio represents the proportionGoodwill represents the reputation and earningAssets and liabilities must be revalued

Frequently Asked Questions

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Sources & Official References

Content is aligned to the official syllabus. Refer to the board website for the latest curriculum.

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