PPT - Reconstitution of a Partnership Firm : Retirement/Death of a Partner | Accountancy Class 12 - Commerce PDF Download

 Page 1


Reconstitution of a 
Partnership Firm 3 
Retirement/Death of a 
Partner
Page 2


Reconstitution of a 
Partnership Firm 3 
Retirement/Death of a 
Partner
Introduction
Partnership Reconstitution
Retirement or death of a 
partner leads to reconstitution 
of a partnership firm. The 
existing partnership deed ends, 
and a new one must be framed 
for the remaining partners to 
continue business.
Similar Accounting 
Treatment
There is minimal difference in 
accounting treatment between 
retirement and death. Both 
require determining the sum 
due after adjustments for 
goodwill, revaluation, and 
accumulated profits/losses.
New Profit Sharing
The process involves computing new profit sharing ratios among 
remaining partners and determining their gaining ratio to continue 
the business effectively.
Page 3


Reconstitution of a 
Partnership Firm 3 
Retirement/Death of a 
Partner
Introduction
Partnership Reconstitution
Retirement or death of a 
partner leads to reconstitution 
of a partnership firm. The 
existing partnership deed ends, 
and a new one must be framed 
for the remaining partners to 
continue business.
Similar Accounting 
Treatment
There is minimal difference in 
accounting treatment between 
retirement and death. Both 
require determining the sum 
due after adjustments for 
goodwill, revaluation, and 
accumulated profits/losses.
New Profit Sharing
The process involves computing new profit sharing ratios among 
remaining partners and determining their gaining ratio to continue 
the business effectively.
Ascertaining the Amount Due 
to Retiring/Deceased Partner
1
Credit Balance of 
Capital Account
The primary component 
is the partner's capital 
account balance, 
representing their 
ownership stake in the 
firm.
2
Share of Goodwill and 
Profits
The partner is entitled 
to their share of 
goodwill, accumulated 
profits (reserves), and 
gains from revaluation of 
assets and liabilities.
3
Current Earnings and Benefits
Their share of profits up to the date of retirement/death, 
interest on capital, and any salary/commission due must 
be included in the settlement.
Page 4


Reconstitution of a 
Partnership Firm 3 
Retirement/Death of a 
Partner
Introduction
Partnership Reconstitution
Retirement or death of a 
partner leads to reconstitution 
of a partnership firm. The 
existing partnership deed ends, 
and a new one must be framed 
for the remaining partners to 
continue business.
Similar Accounting 
Treatment
There is minimal difference in 
accounting treatment between 
retirement and death. Both 
require determining the sum 
due after adjustments for 
goodwill, revaluation, and 
accumulated profits/losses.
New Profit Sharing
The process involves computing new profit sharing ratios among 
remaining partners and determining their gaining ratio to continue 
the business effectively.
Ascertaining the Amount Due 
to Retiring/Deceased Partner
1
Credit Balance of 
Capital Account
The primary component 
is the partner's capital 
account balance, 
representing their 
ownership stake in the 
firm.
2
Share of Goodwill and 
Profits
The partner is entitled 
to their share of 
goodwill, accumulated 
profits (reserves), and 
gains from revaluation of 
assets and liabilities.
3
Current Earnings and Benefits
Their share of profits up to the date of retirement/death, 
interest on capital, and any salary/commission due must 
be included in the settlement.
Deductions
Current Account Debit 
Balance
If the partner's current 
account has a debit balance, 
this amount is deducted from 
their settlement.
Share of Losses
The partner's share of 
accumulated losses, loss on 
revaluation of assets and 
liabilities, and losses up to the 
date of retirement/death are 
deducted.
Drawings and Interest
Any drawings made by the 
partner up to the date of 
retirement/death, along with 
interest on drawings if 
applicable, are deducted from 
the final settlement.
Page 5


Reconstitution of a 
Partnership Firm 3 
Retirement/Death of a 
Partner
Introduction
Partnership Reconstitution
Retirement or death of a 
partner leads to reconstitution 
of a partnership firm. The 
existing partnership deed ends, 
and a new one must be framed 
for the remaining partners to 
continue business.
Similar Accounting 
Treatment
There is minimal difference in 
accounting treatment between 
retirement and death. Both 
require determining the sum 
due after adjustments for 
goodwill, revaluation, and 
accumulated profits/losses.
New Profit Sharing
The process involves computing new profit sharing ratios among 
remaining partners and determining their gaining ratio to continue 
the business effectively.
Ascertaining the Amount Due 
to Retiring/Deceased Partner
1
Credit Balance of 
Capital Account
The primary component 
is the partner's capital 
account balance, 
representing their 
ownership stake in the 
firm.
2
Share of Goodwill and 
Profits
The partner is entitled 
to their share of 
goodwill, accumulated 
profits (reserves), and 
gains from revaluation of 
assets and liabilities.
3
Current Earnings and Benefits
Their share of profits up to the date of retirement/death, 
interest on capital, and any salary/commission due must 
be included in the settlement.
Deductions
Current Account Debit 
Balance
If the partner's current 
account has a debit balance, 
this amount is deducted from 
their settlement.
Share of Losses
The partner's share of 
accumulated losses, loss on 
revaluation of assets and 
liabilities, and losses up to the 
date of retirement/death are 
deducted.
Drawings and Interest
Any drawings made by the 
partner up to the date of 
retirement/death, along with 
interest on drawings if 
applicable, are deducted from 
the final settlement.
Aspects
1
Profit Sharing
Ascertainment 
of new profit 
sharing ratio 
and gaining 
ratio among 
remaining 
partners
2
Goodwill
Treatment of 
goodwill in the 
books of 
accounts
3
Revaluation
Revaluation of 
assets and 
liabilities to 
reflect current 
values
4
Settlement
Settlement of amounts due to retired/deceased partner
Other important aspects include adjustment for unrecorded assets and 
liabilities, distribution of accumulated profits and losses, ascertainment 
of profit/loss share up to retirement/death date, and adjustment of 
capital if required.