Reconstitution of Partnership (Retirement of Partner)
Class-12-Commerce-Book Keeping and Accountancy-Chapter-4-Maharashtra Board
Solutions
Question 1. Objective Type Questions :
(A) Select the most appropriative alternatives from those given below and rewrite the sentences.
(1) The Profit or Loss from revaluation on retirement of partner is shared by .................
(a) The remaining partners (b) All the partners
(c) Only retiring partner (d) Bank
(b) All the partners
(2) Decrease in the value of assets should be ................. to Profit and Loss Adjustment Account.
(a) Debited (b) Credited (c) Added (d) Equal
(a) Debited
(3) The balance of the capital account of retired partner is transferred to his ................. account if it is not paid.
(a) Loan (b) Personal (c) Current (d) Son’s
(a) Loan
(4) Gain ratio................., Ratio less Old Ratio Gain Ratio.............Ratioo less Old Ratio.
(a) New (b) Equal (c) Capital (d) Sacrifice
(a) New
(5) New Ratio = Old Ratio + ................. Ratio
(a) Gain (b) Capital (c) Sacrifice (d) Current
(a) Gain
(6) Apte, Bhate and Chitale are sharing 1/2, 3/10, and 1/5 if Apte retire their new ratio will be .................
(a) 5:2 (b) 3:2 (c) 5:3 (d) 2:5
(b) 3:2
(B) Write the word, term, phrase, which can substitute each of the following statement.
(1) Credit balance of Profit and Loss Adjustment Account.
(2) The Ratio in which the continuing partners are benefited due to Retirement of Partner.
(3) Debit balance of Revaluation Account
(4) The ratio which is obtained by deducting Old Ratio from New Ratio.
(5) Money value of business reputation earned by the firm over a number of years.
(6) Partner’s Account where Loss or Profit on revaluation is transferred.
| Statement | (word/phrase/term) |
| (1) Credit balance of Profit and Loss Adjustment Account. | Profit on Revaluation Accounts |
| (2) The ratio in which the continuing partners are benefited due to retirement of partner. | Gain Ratio |
| (3) Debit balance of Revaluation Account. | Loss on Revaluation |
| (4) The ratio which is obtained by deducting Old Ratio from New Ratio. | Gain Ratio |
| (5) Money value of business reputation earned by the firm over a number of years. | Goodwill |
| (6) Partner’s Account where Loss or Profit on revaluation is transferred. | Capital/Current Account |
(C) State whether the following statement are true or false with reasons.
(1) Gain ratio means New ratio minus old ratio.
Statement is : True
Reason: According to the textbook, the Gain Ratio is specifically defined and calculated using the formula: Gain Ratio = New Ratio - Old Ratio.
(2) Retiring partners share in Profit up to the date of his retirement will be debited to Profit and Loss Suspense Account
Statement is : True
Reason: If a partner retires during the accounting year, their proportionate share of profit from the date of the last Balance Sheet to the date of retirement is transferred by debiting the Profit and Loss Suspense Account and crediting the retiring partner's Capital/Current Account.
(3) On retirement of a partner sacrifice ratio is considered.
Statement is : False
Reason: On the retirement of a partner, the continuing partners acquire the retiring partner's share, meaning they gain. Therefore, the Gain Ratio (or Benefit Ratio) is considered, not the sacrifice ratio.
(4) Retiring Partner is called an outgoing partner
Statement is : True
Reason: Retirement occurs when a member ceases to be a partner while the remaining partners continue the business. In this context, the partner leaving the firm is referred to as the outgoing partner.
(5) On retirement of a partner, remaining partner will share the goodwill in their profit sharing ratio
Statement is : False
Reason: When goodwill is raised to the extent of the retiring partner's share and then written off, it is written off against the continuing (remaining) partners in their Gain Ratio, not their normal profit-sharing ratio.
(6) Retiring partner is not entitled to share in General Reserve and Accumulated Profit.
Statement is : False
Reason: The sources state that on retirement, any reserve or accumulated profit/loss is transferred to the capital accounts of all partners (including the retiring partner) in their profit-sharing ratio.
(D) Fill in the blanks and rewrite the following sentence :
(1) New Ratio (less) ................. = Gain ratio
Old ratio
(2) Retiring Partner’s share of goodwill is ................. to remaining partner’s capital account .
Debited
(3) Revaluation A/c is also known as ................. account
Profit and Loss Adjustment
(4) On retirement, the balance at a current Account of a partner is transferred to his ................. account.
Capital
(5) A proportion in which the continuing partners get the share of retiring partner is known as .................ratio.
Gain
(E) Answer the following.
(1) What is meant by Retirement of a Partner?
Retirement of a partner occurs when one member ceases to be a partner and the remaining partners continue to carry on the business of the firm. It is a mode of reconstitution of partnership.
(2) What is Benefit Ratio?
The benefit ratio, also known as the Gain Ratio, is the ratio in which the continuing partners acquire the retiring partner’s share.
(3) What is New Ratio?
The New Profit Sharing Ratio is the ratio in which the continuing partners decide to share the future profits and losses of the business after the retirement of a partner.
(4) How is the amount due to the retiring partner settled?
The total amount payable to a retiring partner can be settled in the following ways:
- Lumpsum: The entire amount is paid in one installment.
- Installment: The balance due is transferred to a Loan Account and paid over time, often with interest.
- Partial Payment: Part of the amount is paid in cash immediately, and the remaining balance is transferred to a Loan Account.
(5) How is Gain Ratio calculated?
The Gain Ratio is calculated using the following formula: Gain Ratio = New Ratio - Old Ratio.
(6) Why is retiring partner’s capital account credited with goodwill?
- Goodwill represents the money value of business reputation earned by the firm over many years.
- Since the retiring partner contributed to building this reputation, they are entitled to their share of its value upon leaving the firm.
- Crediting their capital account recognizes and compensates them for their portion of this intangible asset.
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