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NCERT · Class 12 · Accountancy

Unit 3: Reconstitution of a Partnership Firm – Retirement/Death of a Partner

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Short Questions for NCERT Accountancy Solutions Class 12 Part 1 Chapter 4

4 questions
Q2Written answer

Write the various matters that need adjustments at the time of retirement of partner/partners.

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At the time of retirement of partner/partners, the following matters need adjustment:

i. Determining the new gaining ratio of the partners who are remaining in the firm.

ii. Determine the new ratio of the firm’s remaining partners.

iii. Determine the goodwill of the firm and ensure its proper accounting treatment.

iv. Revaluating liabilities and assets of the new firm.

v. Distributing among all the partners the accumulated profits and losses, along with reserves.

vi. Retiring partner’s settlement.

vii. Revised calculation of capital accounts of remaining partners and their new and updated profit-sharing ratio.

viii. Joint life policy treatment.

Q3Written answer

Distinguish between sacrificing ratio and gaining ratio.

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Basis of Difference Sacrificing Ratio Gaining Ratio
1. Meaning The ratio where a partner of a firm agrees to sacrifice the profit share and make it available for a new partner. That ratio in which a partner obtains the profit share from the partner who is leaving the firm.
2. Calculation Calculated as the difference between the old and new ratio Calculated as the difference between the new and old ratio
3. Time The calculation is done at the admission of a new partner The calculation is done at the retirement/death of a partner.
4. Objective It is used to determine the profit and loss share that is sacrificed by the current partners at the time of the joining of a new partner. It is used to determine the profit and loss share that is obtained by the existing partners when a partner retires/becomes deceased
5. Effect Existing partners’ profit share is reduced Continuing partners’ profit share is increased.
Q4Written answer

Why do a firm revaluate assets and reassess its liabilities on retirement or on the event of the death of a partner?

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Worked solution

As a partner retires or is taken away by death, it becomes critical to determine the liabilities and assets’ value on the current date to get a fair idea about its true worth. Revaluation becomes essential as liabilities and assets may increase or decrease in value as time passes. It may also happen that certain liabilities and assets had remained unrecorded the last time books were updated. As a partner retires/death happens, it may have a positive/negative impact on the value of the firm’s liabilities and assets. Therefore, it is a good idea to revaluate the value so that the true profit/loss can be determined and it can be shared among partners as per sharing ratio as determined at the time of setting up the partnership.

Q5Written answer

Why a retiring/deceased partner is entitled to a share of goodwill of the firm?

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Worked solution

A firm earns goodwill through the efforts of its partners and is regarded as one of the most important intangible assets. After a partner retires or is dead, the good work that was done by that partner should be acknowledged, and hence proper compensation should be provided to the partner in the form of a part of the goodwill of the firm.