Retirement or Death of a partner Test - 8

At the time of retirement, share of goodwill is calculated for the retired partner as follows: Value of firm’s goodwill x His Share of profit

Reconstitution of partnership takes place at the time of retirement of death of a partner. A firm may continue its business after the death of a partner, with the consent of continuing partners. In such a case, share of deceased partner will be purchased or acquired by the remaining partners.

There are two ways through which profit of a deceased partner can be calculated which are Sale Basis or Time Basis. Profit and Loss Suspense Account is temprorly account which is to be shown on the credit side of capital account of deceased partner.

Deceased partner’s share of profit will be provided through profit and loss suspense account. This account is temporary account which is prepared to adjust the profit of deceased partner (up to the date of his death).

Gaining ratio is that ratio in which continuing partners acquire the share of outgoing partner. It is calculated at the time of retirement or death of a partner.

Sometimes amount due to retiring partner is treated as loan in the business for which interest is paid to the outgoing partner. Such amount is payable to the outgoing partner in installments with interest. This settlement can be done on the basis of pre decoded terms or conditions among the partners.

When gain share of partners is given in the question, in such a case to find out the new share of continuing partners, share acquired by them should be added to their old share. we can say, New ratio = Old ratio + Gaining ratio

At the time of death or retirement of a partner, continuing partners may decided to new profit sharing ratio.

Sometimes with the consent of all the partners, firm may pay extra amount to the outgoing partner other than his capital amount which is known as Goodwill amount.

Bad debts recovered will be shown in the credit side of revaluation account by which revaluation profit will increase. The amount received in the form of bad debts recovered will be added to cash while preparing balance sheet.