Retirement or Death of a partner Test - 1

Explanation:

A partner can get retirement in the following ways:

Section32 

RETIREMENT OF A PARTNER. 

(1) A partner may retire - 

(a) with the consent of all the otter partners, 
(b) in accordance with an express agreement by the partners, or 
(c) where the partnership is at will, by giving notice in writing to all the other 
partners of his intention to retire. 

(2) A retiring partner may be discharged from any liability to any third party for acts 
of the firm done before his retirement by an agreement made by him with such third 
party and the partners of the reconstituted firm, and such agreement may be implied 
by a course of dealing between such third party and the reconstituted firm after he 
had knowledge of the retirement. 

(3) Notwithstanding the retirement of a partner from a firm, he and the partners 
continue to be liable as partners to third parties for any act done by any of them 
which would have been an act of the firm if done before the retirement, until public 
notice is given of the retirement 
Provided that a retired partner is not liable to any third party who deals with the firm 
without knowing that he was a party. 

(4) Notices under sub-section (3) may be given by the retired partner or by any 
partner of the reconstituted firm. 

Explanation:

Outgoing partner cannot take complete goodwill of the firm. Outgoing partner is entitled for the followings:

(i) His capital account balance

(ii) His share of profit reserves & gains etc.

(iii) Revaluation profit or loss

(iv) His share of goodwill

Note: outgoing partner is entitled for his share of goodwill only and not the complete goodwill of the firm.

Explanation:

At the time of retirement or death of a partner we need to calculate the gaining ratio of the existing partners. The main purpose of calculating gaining ratio is to adjust the share of goodwill at the time of retirement or death of a partner. This is true in normal condition, if after retirement, remaining partners changes their ratio then there are chances that some partners has to suffer loss.so gain and sacrifice both ratio is to be calculated.

Gaining Ratio is calculated at the time of retirement or death of partner. It is the excess of new ratio over old ratio of old partners except retire or dead partner.

Gaining Ratio = New Ratio - Old Ratio

Explanation:

Gaining ratio is calculated by deducting the old ratio from the new ratio. The following formula is used to calculate the gain ratio.
Gaining ratio = New ratio – old ratio

Explanation:

At the time of retirement, goodwill given in the balance sheet should be debited to the partners in their old profit sharing ratio (including the outgoing partner).

Explanation:

The main purpose of calculating gaining ratio at the time of retirement of a partner is to adjust his amount of goodwill. After calculating his share of goodwill, gainer partners will be debited and outgoing partner will be credited.

Explanation:

To calculate the new profit sharing ratio at the time of retirement, following formula should be used: New Share = Old Share + Acquired Share.

Sometimes these acquired share is in negative. it means that there is some sacrifice by the partner and some other partner is gaining more share in the future profit.

Explanation:

Goodwill given in the old balance sheet will be written off by all the partners (including retiring partner) at the time of retirement of a partner. Goodwill will be written off in the old ratio of all the partners.

As it is fictitious assets so we write it on debit side of partners capital account and reduce partners capital with that effect. So asset goddiwll gone and liabilities capital reduce. debit =credit.

Explanation:

When a partner retires from the firm, his share will be acquired by the continuing partners. The ratio in which they acquire the share of retired partner, is known as gaining ratio.