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RETIREMENT OF A PARTNER
MEANING: 
When one or more partners leaves the firm and 
the remaining partners continue to do the 
business of the firm, it is known as retirement of a 
partner. 
Due to some reasons like old age, poor 
health, strained relations etc., an existing partner 
may decide to retire from the partnership. 
Page 2


RETIREMENT OF A PARTNER
MEANING: 
When one or more partners leaves the firm and 
the remaining partners continue to do the 
business of the firm, it is known as retirement of a 
partner. 
Due to some reasons like old age, poor 
health, strained relations etc., an existing partner 
may decide to retire from the partnership. 
RETIREMENT OF A PARTNER
A partner retires either :
(i) with the consent of all partners, or
(ii) as per terms of the agreement; or
(iii) at his or her own will.
Page 3


RETIREMENT OF A PARTNER
MEANING: 
When one or more partners leaves the firm and 
the remaining partners continue to do the 
business of the firm, it is known as retirement of a 
partner. 
Due to some reasons like old age, poor 
health, strained relations etc., an existing partner 
may decide to retire from the partnership. 
RETIREMENT OF A PARTNER
A partner retires either :
(i) with the consent of all partners, or
(ii) as per terms of the agreement; or
(iii) at his or her own will.
RETIREMENT OF A PARTNER
Due to retirement, the existing 
partnership comes to an end and the 
remaining partners form a new 
agreement and the partnership firm is 
reconstituted with new terms and 
conditions. At the time of retirement the 
retiring partner’s claim is settled.
Page 4


RETIREMENT OF A PARTNER
MEANING: 
When one or more partners leaves the firm and 
the remaining partners continue to do the 
business of the firm, it is known as retirement of a 
partner. 
Due to some reasons like old age, poor 
health, strained relations etc., an existing partner 
may decide to retire from the partnership. 
RETIREMENT OF A PARTNER
A partner retires either :
(i) with the consent of all partners, or
(ii) as per terms of the agreement; or
(iii) at his or her own will.
RETIREMENT OF A PARTNER
Due to retirement, the existing 
partnership comes to an end and the 
remaining partners form a new 
agreement and the partnership firm is 
reconstituted with new terms and 
conditions. At the time of retirement the 
retiring partner’s claim is settled.
RETIREMENT OF A PARTNER
The terms and conditions of 
retirement of a partner are normally 
provided in the partnership deed. If 
not, they are agreed upon by the 
partners at the time of retirement.
Page 5


RETIREMENT OF A PARTNER
MEANING: 
When one or more partners leaves the firm and 
the remaining partners continue to do the 
business of the firm, it is known as retirement of a 
partner. 
Due to some reasons like old age, poor 
health, strained relations etc., an existing partner 
may decide to retire from the partnership. 
RETIREMENT OF A PARTNER
A partner retires either :
(i) with the consent of all partners, or
(ii) as per terms of the agreement; or
(iii) at his or her own will.
RETIREMENT OF A PARTNER
Due to retirement, the existing 
partnership comes to an end and the 
remaining partners form a new 
agreement and the partnership firm is 
reconstituted with new terms and 
conditions. At the time of retirement the 
retiring partner’s claim is settled.
RETIREMENT OF A PARTNER
The terms and conditions of 
retirement of a partner are normally 
provided in the partnership deed. If 
not, they are agreed upon by the 
partners at the time of retirement.
Adjustments to be made
(a) New profit sharing ratio and gaining ratio.
(b) Goodwill
(c) Revaluation  of Assets and liabilities
(d) Transfer of accumulated reserve 
(e) Transfer of undistributed profit or loss
(f) Settlement of retiring partners dues
(g) New capital of the continuing partners.
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FAQs on PPT - Reconstitution of a Partnership Firm : Retirement/Death of a Partner - Accountancy Class 12 - Commerce

1. What is the process for reconstituting a partnership firm in the event of a partner's retirement or death?
Ans. In the event of a partner's retirement or death, the remaining partners need to take certain steps to reconstitute the partnership firm. This involves valuing the outgoing partner's share, adjusting the capital accounts, and making necessary changes to the partnership agreement. The process may also include admitting new partners or redistributing profits and losses among the existing partners.
2. How is the outgoing partner's share valued during reconstitution of a partnership firm?
Ans. The valuation of the outgoing partner's share is typically based on the agreed terms mentioned in the partnership agreement. If there is no agreement, the share can be valued based on the net book value of assets and liabilities, or by considering the market value of the firm's assets. Other methods such as the capitalization of average profits or the capitalization of super profits can also be used.
3. What happens to the capital accounts of the remaining partners after a partner's retirement or death?
Ans. After a partner's retirement or death, the capital accounts of the remaining partners are adjusted to reflect the changes in the partnership firm. The outgoing partner's capital is transferred to their loan account or settled through cash payment. The remaining partners may need to contribute additional capital or withdraw capital from their accounts to maintain the desired capital balance as per the new partnership agreement.
4. Can new partners be admitted during the reconstitution of a partnership firm?
Ans. Yes, new partners can be admitted during the reconstitution of a partnership firm. The decision to admit new partners is usually based on the mutual agreement of the existing partners. The new partners may bring in additional capital, skills, or resources to the firm. The terms of admission, such as profit-sharing ratio and capital contribution, need to be agreed upon and documented in the revised partnership agreement.
5. How are profits and losses redistributed among the remaining partners after a partner's retirement or death?
Ans. Profits and losses are redistributed among the remaining partners based on the new profit-sharing ratio agreed upon during the reconstitution of the partnership firm. The profit-sharing ratio determines the proportion in which the profits or losses of the firm will be divided among the partners. It may be based on factors such as capital contribution, skills, experience, or any other criteria as agreed upon by the partners.
41 videos|106 docs|56 tests
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