Revision: Retirement and Death of a Partner Accountancy HSC Commerce Class 12 Tamil Nadu Board of Secondary Education

Net Effect = Accumulated Profits + Reserves - Accumulated Losses.

• Retirement Right: A partner can retire by agreement or notice; the firm continues with the remaining partners.
• Entitlements: Retiring partner gets a share in goodwill, reserves, revaluations, and the joint life policy.
• Adjustments: Include new profit ratio, goodwill, asset revaluation, reserves, and capital.
• Payment: Amount due is credited to the Capital A/c and paid immediately or later.
• Effect: Retirement causes reconstitution, not dissolution, of the firm.

1. For a decrease in the value of assets : 

Revaluation A/c or Profit & Loss Adjustment A/c     ...Dr. 

           To Assets A/c

(Decrease in the value of assets) 

2. For an increase in the value of assets :

Assets A/c      ...Dr.

       To Revaluation A/c or Profit & Loss Adjustment A/c

(Increase in the value of assets) 

3. For an increase in the value of liabilities:

Revaluation A/c or Profit & Loss Adjustment A/c     ...Dr.

         To Liabilities A/c

(Increase in the value of liabilities) 

4. For a decrease in the value of liabilities : 

Liabilities A/c                          ...Dr.

      To Revaluation A/c or Profit & Loss Adjustment A/c

(Decrease in the value of liabilities)

5. For accounting unrecorded assets

Unrecorded Assets A/c          ...Dr.

       To Revaluation A/c

(accounting of unrecorded assets)

6. For accounting unrecorded liabilities

Revaluation A/c               ...Dr.

      To Unrecorded Liabilities A/c

(Accounting of unrecorded liabilities)

7. For transferring Gain (Profit):

Revaluation A/c              ...Dr.

     To Old Partner's Capital A/cs

(Gain on revaluation credited to Old Partner's Capital A/cs) 

8. For transferring loss: 

Old Partner's Capital A/cs       ...Dr.

      To Revaluation A/c

(Loss on revaluation debited to Old Partner's Capital A/cs)

A. Distribution of Reserves and Accumulated Profits (in Old Ratio):

When distributing accumulated profits (e.g., General Reserve, Reserve Fund, P&L Credit Balance):

General Reserve A/c                          ...Dr.

Reserve Fund A/c                              ...Dr.

Profit & Loss A/c (Credit balance)   ...Dr.

      To Old Partner's Capital A/cs or Current A/cs

B. Distribution of Specific Reserves (Only Surplus):

If only the surplus amount is to be distributed (e.g., Workmen's Compensation Reserve, IFR):

Workmen's Compensation Reserve A/c      ...Dr.

Investment Fluctuation Reserve A/c           ....Dr.

           To All Partners' Capital A/c or Current A/c

C. Distribution of Accumulated Losses (in Old Ratio):

When accumulated losses (e.g., P&L Debit Balance, Advertisement Suspense A/c) are transferred:

All Partners' Capital A/c or Current A/c       ...Dr.

        To Profit & Loss A/c (Debit Balance)

        To Advertisement Suspense/Expenditure A/c

D. Adjustment of Reserves/Profits Through Gaining and Sacrificing Partners:

1. In Case of Net gain (Profit):

Gaining Partners' Capital/Current A/cs     ...Dr.

      To Sacrificing Partner's Capital/Current A/cs

2. In Case of Net Loss:

Sacrificing Partners; Capital/Current A/c     ...Dr.

     To Gaining Partners' Capital/Current A/cs

               Calculation of Gain/(Sacrifice) of each Partner

• On a partner’s death, the firm may continue with the remaining partners.
• The amount due is paid to the legal heirs or executor of the deceased partner.
• The deceased partner’s account is credited with capital, goodwill, reserves, revaluation profit, life policy, etc.
• It is debited with drawings, interest on drawings, revaluation loss, and accumulated losses.
• Profit up to the date of death is calculated on a time basis or turnover basis.