Accountancy · Ch 6 — Retirement and Death of a Partner
Meaning of Retirement and Death of a Partner
Meaning of Retirement and Death of a Partner
When a partner retires or dies, the firm does not automatically come to an end — the remaining partners usually continue the business, and the firm is said to be reconstituted. Tamil Nadu's HSC Accountancy syllabus treats Retirement and Death of a Partner together because most of the accounting work required — computing a new profit-sharing ratio, valuing and adjusting goodwill, revaluing assets and liabilities, and settling the outgoing partner's dues — is common to both events; only the settlement recipient and one or two procedural points differ. These are the very same double-entry principles that also run through Accountancy in the CBSE/NCERT Commerce curriculum, so this chapter builds directly on what you already studied under Admission of a Partner.
Retirement of a Partner
Retirement is the voluntary withdrawal of a partner from the firm — with the consent of the other partners, as provided for in the partnership deed, or by giving notice where the partnership is 'at will' — while the remaining partners continue the business.
Death of a Partner
Death of a partner is the involuntary, automatic cessation of a partner's membership caused by his or her death. Unlike retirement, it can occur at any point during the accounting year and needs neither notice nor the other partners' consent.
| Basis | Retirement | Death |
|---|---|---|
| Nature | Voluntary | Involuntary |
| Timing | Usually planned, often at year-end | Can occur any time during the year |
| Formality | Needs consent/notice per the deed or the Indian Partnership Act, 1932 | No notice or consent needed |
| Settlement paid to | The retiring partner personally | The deceased partner's legal representative (Executor) |
| Extra computation needed | Not usually | Deceased partner's share of profit up to the date of death must be estimated |
Both events call for broadly the same five accounting adjustments: (1) working out a new profit-sharing ratio and a gaining ratio for the remaining partners; (2) compensating the outgoing partner for goodwill; (3) revaluing assets and liabilities; (4) adjusting accumulated profits, reserves and losses; and (5) ascertaining and settling the amount finally due to the outgoing partner (or, on death, to the executor) — with, only in the case of death, the extra step of estimating the deceased partner's share of the current year's profit up to the date of death.
The voluntary withdrawal of a partner from a firm, with the consent of the other partners or as provided in the partnership deed, while the remaining partners continue the business.
The involuntary, automatic end of a partner's membership in the firm on his or her death, which can occur at any time during the accounting year.
A change in the agreement among partners (e.g. on admission, retirement, or death of a partner) under which the firm continues, but with a changed profit-sharing ratio and/or a changed set of partners.
The person legally appointed to administer a deceased person's estate; on a partner's death, amounts due to the deceased are settled with the executor rather than with the partner personally.