Accountancy · Ch 6 — Reconstitution of a Partnership Firm — Retirement/Death of a Partner
Introduction
Introduction
Retirement and Death: Another Form of Reconstitution
Just like admitting a new partner, the retirement or death of a partner also reconstitutes a partnership firm. The existing partnership deed comes to an end, and the remaining partners must frame a new deed to continue the business on changed terms.
The accounting treatment for retirement and for death is almost identical. In both cases, the firm has to:
- Work out the exact amount payable to the outgoing partner (or, in case of death, to their legal representatives) — after adjusting for goodwill, revaluation of assets and liabilities, and any accumulated profits or losses.
- Recalculate the new profit-sharing ratio among the remaining partners.
- Work out the gaining ratio — the ratio in which the remaining partners have gained the outgoing partner's share.
Note
Where admission involves a sacrificing ratio (existing partners give up a share to the incoming partner), retirement and death involve a gaining ratio (remaining partners absorb the outgoing partner's share). This chapter works through both situations in full detail.