## Reconstitution of a partnership Firm:Retirement/Death of a partner Important Questions for CBSE Class 12 Accountancy Introduction and New profit Sharing Ratio/Gaining Ratio

1. Meaning of Retirement Retirement of a partner means ceasing to be a partner of the firm.
The different ways by which a partner can retire from the firm are:
(i)   With the consent of all the partners.
(ii) By giving notice in writing to all other partners of his intention to retire, in case of partnership at will.
(iii) In accordance with the terms of agreement between the partners.
2. Liability of a Partner
Liability of the Firm for the Acts before Retirement [Section 32(2)] A retiring partner remains liable for all the acts of the firm up to the date of his retirement. However, a retiring partner may be discharged from his liability by an agreement between himself, third party and the continuing partners.
Liability of the Firm for the Acts after Retirement [Section 32 (3)] A retiring partner also continues to be liable to third parties for the acts of the firm even after his retirement until a public notice of his retirement is given.
Various matters that need accounting adjustment at the time of retirement are:
(i) Determination of new profit sharing ratio
(ii) Determination of gaining ratio
(iii) Treatment of goodwill
(iv) Revaluation of assets and liabilities
(v) Adjustment of accumulated profits and losses
(vii) Determination of the amount payable to the retiring partner
3. New Profit Sharing Ratio The ratio in which the continuing partners will share profits and losses is called new profit sharing ratio. It is the sum total of his old share and the ratio in which the outgoing partner’s share of profit is acquired.
New Ratio = Old Ratio + Gaining Ratio
4. Gaining Ratio The ratio in which the remaining i.e. continuing partners have acquired the share from the retiring partner is called gaining ratio.
Gaining Ratio = New Ratio – Old Ratio
5. Difference between Sacrificing Ratio and Gaining Ratio

1 Mark Questions
1. X, Y and Z are partners sharing profits in the ratio of 1/2, 2/5 and 1/10. Find the new ratio of remaining partners, if Z retires.  (Delhi 2014)
Ans. Old ratio of X: V : Z = 1/2: 2/5: 1/10 or 5/10: 4/10: 1/10 or 5:4:1
Z retires, after striking of the retiring partner’s ratio, remaining ratio will be new profit sharing ratio, i.e. 5 :4.

2. Why heirs of a retiring/deceased partner are entitled to a share of goodwill of the firm?  (Delhi 2014)
Ans. The retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm at the time when he was a partner.

3. X, Y and Z were partners sharing profits in the ratio of 1/2, 3/10, and 1/5. X retired from the firm. Calculate the gaining ratio of the remaining partners.  (All India 2014)
Ans. Old ratio of X:Y:Z =1/2: 3/10 :1/5 or 5/10 : 3/10 : 2/10= 5:3:2
X retired, after striking of the retiring partner’s ratio, remaining ratio will be new profit sharing ratio,i.e. 3:2
New profit sharing ratio = Y : Z = 3:2
Gaining Ratio = New Ratio – Old Ratio
Y = 3/5-3/10 = 6-3/10=3/10;     Z=2/5-2/10 =4-2/10 =2/10
Gaining ratio = 3:2

4. Ram, Mohan and Sohan were partners in a firm sharing profits in the ratio of 4:3:2. Mohan retired. His share was taken over equally by Ram and Sohan. In which ratio will the profit or loss on revaluation of assets and liabilities on the retirement of Mohan be transferred to the capital accounts of the partners? (Delhi 2010C)
Ans. The profit or loss on revaluation of assets and liabilities on the retirement of Mohan will be transferred to the capital accounts of the partners in their old ratio, i.e. 4:3:2.

5. How can a partner retire from a firm? (Foreign 2009)
Ans. A partner can retire
(i) With the consent of all the partners.
(ii) By giving notice in writing, in case of partnership at will.

6. A, B and C were partners in a firm sharing profits in the ratio of 8 : 4 :3. B retires and his share is taken up equally by A and C. Find the new profit sharing ratio. (Delhi 2009)

7. Define gaining ratio. (Delhi 2008)
Ans. The ratio in which the continuing partners have acquired the share from the retiring partner’s share of the profit is termed as gaining ratio.
Gaining Ratio = New Ratio – Old Ratio

8. A, B and C are partners sharing profits in the ratio of 3 : 2 :1. B retires and new profit sharing ratio between A and C is 3 : 1. State the gaining ratio.  (All India 2008)

2 Marks Questions
9. (i) K, L and Z are partners sharing profits in the ratio of 4 : 3 : 2 respectively. L retired and surrendered 1/9 of his share of profit to K and remaining in favour of Z.
Calculate the new profit sharing ratio of K and Z.
(ii) Arun, Varun and Charan are partners sharing profits in the ratio of 1/2, 3/10 and 1/5 respectively. Varun retired from the firm and Arun and Charan decided to share future profits in 3 : 2 ratio. Calculate gaining ratio of Arun and Charan. (Compartment 2014)
Ans. (i) Old ratio between K, L and Z = 4 : 3 : 2.
Share surrendered in favour of K by L = 3/9 x 1/9 = 3/81
Share surrendered in favour of Z by L = 3/9-3/81 = 27-3/81 = 24/81

10. R, S and M are partners sharing profits in the ratio of 2/5, 2/5 and 1/5. M decides to retire from business, and his share is taken by R and S in the ratio of 2 : 1. Calculate the new profit sharing ratio. (All India 2011)

11. A, B and C were partners in a firm sharing profits in the ratio of 5 : 4:3. B retires and his share is taken up equally by A and C. Find the new profit sharing ratio. (All India 2009)

12. A, B and C were partners in a firm sharing profits in the ratio of 6 : 5:4. C retires and his share is taken up equally by A and B. Find the new profit sharing ratio. (Foreign 2009)