Retirement and Death of a Partner — Part 1: Ratios, Goodwill, Revaluation and Reserves: visual lesson, ISC Class 12 Accounts

Lesson

Reconstitution: Retirement and Death of a Partner

Part 1 — ratios, goodwill, revaluation and reserves when a partner leaves. Every firm, person and figure in this chapter is imagined.

In this lesson you will

Calculate the new ratio and the gaining ratio when a partner retires or dies, including a continuing partner who sacrifices
Adjust the outgoing partner's share of goodwill (stated or hidden) through the gaining partners under Accounting Standard 26, and write off book goodwill
Prepare the Revaluation Account and distribute reserves and accumulated losses among all the partners

Part 1 at a glance

Concept

A partner retires with the consent of all the others, under an express agreement, or by notice when the partnership is at will.
Unless the deed says otherwise, death dissolves the firm; most deeds let the survivors carry on.

Indian Partnership Act, 1932.
Point	Retirement	Death
How it happens	With the consent of all other partners, under an express agreement, or by notice in a partnership at will (Section 32)	Dissolves the firm unless the deed provides that the others carry on (Section 42)
When	Usually at the end of an accounting year	Any day of the year: profit till death must be worked out
Who is paid	The retiring partner	The deceased partner's executor (legal representative)
Unpaid balance	Retiring partner's Loan A/c	Executor's Loan A/c

Concept

The outgoing partner is entitled to his capital plus his share of everything the firm earned or built up while he was a partner.

What is settled when a partner leaves