Retirement and Death of a Partner

CBSE Class 12 Accountancy | 2026–27

1. Retirement

A retiring partner leaves the firm and the remaining partners continue. The outgoing partner’s entitlement must be calculated before settlement.

2. Gaining Ratio – Worked Example

A, B and C share 3:2:1. C retires. A and B agree to share future profits in 3:2. A’s old share = 1/2 and new share = 3/5, so A gains 1/10. B’s old share = 1/3 and new share = 2/5, so B gains 1/15. Gaining ratio = 1/10 : 1/15 = 3:2.

3. Goodwill

The retiring partner is entitled to the appropriate goodwill adjustment. The gaining partners compensate the retiring partner in their gaining ratio where required.

4. Revaluation and Reserves

Revaluation profit/loss and reserves relating to the period before retirement are adjusted among the old partners in the old ratio. The retiring partner therefore receives the portion earned before retirement.

5. Amount Due

Prepare the retiring partner’s Capital Account and Current Account, including capital, goodwill, revaluation, reserves, accumulated profits/losses, profit up to retirement and drawings as applicable. If the amount is not paid immediately, transfer it to the partner’s loan account according to the terms.

6. Death of a Partner

On death, the deceased partner’s entitlement is transferred to the executor. The amount may include capital, goodwill, reserves, revaluation and the deceased partner’s share of profit up to the date of death.

Profit-Up-to-Date Example

Previous annual profit = ₹1,20,000. Death occurs after three months. Assuming profit accrues evenly and no other information is given, estimated profit up to death = ₹1,20,000 × 3/12 = ₹30,000. The deceased partner’s share is then calculated using the applicable ratio.

🖼️ Settlement Flow

Exam Practice

1. Calculate gaining ratio after retirement.
2. Prepare a retiring partner’s Capital Account.
3. Calculate profit up to the date of death using time or sales basis where specified.
4. Prepare the deceased partner’s account and Executor’s Account.

MCQs

1. Gaining ratio = new share − old share. True.
2. Revaluation profit before retirement is shared in old ratio. True.
3. The deceased partner’s share of profit can be calculated up to the date of death. True.
4. An unpaid retiring partner may be transferred to a loan account. True.
5. The executor represents the deceased partner’s estate for settlement. True.