CBSE Class 12 Accountancy – Chapter 4: Retirement and Death of a Partner

NCERT/CBSE-aligned study resource

1. Retirement of a Partner

A partner may retire according to the partnership agreement and applicable partnership law. The continuing partners acquire the retiring partner’s share in the future profits.

2. Gaining Ratio

Gaining ratio = New ratio − Old ratio for continuing partners. It is used when goodwill is adjusted to compensate the retiring partner for the share acquired by continuing partners.

3. Goodwill Adjustment

The retiring partner is entitled to his or her share of goodwill. Continuing partners compensate the retiring partner in their gaining ratio under the relevant adjustment method.

4. Revaluation and Reserves

Revaluation profit/loss and accumulated reserves relating to the period before retirement are transferred to all old partners in the old ratio, including the retiring partner.

5. Amount Due to Retiring Partner

The amount may include capital balance, current account balance, share of goodwill, share of revaluation profit and reserves, less drawings or losses. The settlement may be immediate or through the retiring partner’s loan account according to the agreement.

6. Death of a Partner

On death, the deceased partner’s representatives are entitled to amounts due under the partnership arrangement, including the share of goodwill, revaluation, reserves and profit up to the date of death.

7. Profit Up to Date of Death

Profit up to the date of death may be estimated on the basis of time elapsed, sales or another agreed method. The method must follow the information and terms given in the question.

8. Worked Gaining-Ratio Example

A, B and C share 3:2:1. C retires and A and B agree to share future profits 5:3. A’s gain = 5/8−3/6 = 1/24; B’s gain = 3/8−2/6 = 1/24. Gaining ratio = 1:1.

Exam Focus

• Use old ratio for pre-retirement revaluation and reserves.
• Use gaining ratio for goodwill compensation to the retiring partner.
• For death, carefully calculate profit only up to the relevant date.

Chapter-Specific MCQs

1. Gaining ratio is: (A) New−Old (B) Old−New (C) Old+New (D) Capital−Drawings. Answer: A.
2. Revaluation profit at retirement is generally shared among: (A) all old partners (B) continuing partners only (C) creditors (D) new partner. Answer: A.
3. The deceased partner’s profit share is calculated: (A) up to the date of death (B) for the next five years (C) only after death (D) never. Answer: A.

Competency Questions

1. Calculate the gaining ratio after retirement.
2. Prepare the amount due to a retiring partner from multiple adjustments.
3. Explain why the deceased partner’s representative receives profit up to the date of death.