Important Questions and Answers for Class 12 Accountancy Chapter 3 Reconstitution of a Partnership Firm Retirement Death of a Partner 2025-26

1. Multiple choice questions.

Q1. What is the ‘gaining ratio’ used for at the time of retirement of a partner?

• (a) Distribution of profits of the year
• (b) Adjustment of goodwill
• (c) Revaluation of assets
• (d) Adjustment of capital accounts

Answer: (b) Adjustment of goodwill.

Q2. Which of the following is not credited to the retiring or deceased partner’s account?

• (a) Share of goodwill
• (b) Accumulated profits
• (c) Drawings
• (d) Share in profit up to date

Answer: (c) Drawings.

Q3. When is the balance due to the retiring partner transferred to Loan Account?

• (a) If his account is settled in full by cash
• (b) If his account is not settled in full by cash
• (c) If his account shows debit balance
• (d) If there is loss on revaluation

Answer: (b) If his account is not settled in full by cash.

Q4. On death of a partner, his legal representatives are entitled to:

• (a) Only capital amount standing
• (b) Share in assets only
• (c) Share in goodwill, reserves, profit up to date, etc.
• (d) None of these

Answer: (c) Share in goodwill, reserves, profit up to date, etc.

2. Very Short Answer (VSA).

Q1. What does 'Retirement of a Partner' mean?

Answer: Retirement of a partner refers to when a partner leaves the partnership firm, ending his relationship with other partners while the business continues with the remaining partners.

Q2. What is the 'New Profit Sharing Ratio'?

Answer: The new profit sharing ratio is the ratio in which the remaining partners agree to share profits and losses after the retirement or death of a partner.

Q3. State one adjustment required at the time of retirement of a partner.

Answer: One adjustment is to calculate and distribute the retiring partner's share of goodwill among the remaining partners according to the gaining ratio.

Q4. Name the account prepared for distribution of profits or losses on revaluation of assets and liabilities.

Answer: Revaluation Account is prepared to record and distribute profits or losses arising from revaluation of assets and liabilities.

3. Short Answer Questions.

Q1. Explain why adjustment for goodwill is necessary at the time of retirement or death of a partner.

Answer: Adjustment for goodwill is necessary because the retiring or deceased partner contributed to the creation of goodwill. He or she must be compensated for their share, which is received by the remaining partners in the form of increased future profits. This is done through the gaining ratio.

Q2. How is the gaining ratio computed, and why is it important?

Answer: Gaining ratio is calculated by subtracting the old ratio from the new profit sharing ratio for each continuing partner: Gaining Ratio = New Share – Old Share. It is important because it shows how much each partner gains and guides the distribution of goodwill and other adjustments.

Q3. Mention the items included while determining the amount due to a retiring partner.

Answer: The amount due includes credit balances of capital and current accounts, share of goodwill, accumulated profits, revaluation gains, profits until retirement, and any interest or salary due, less losses, drawings, and other debits.

Q4. What is the significance of preparing a Loan Account for the retiring partner?

Answer: When the full amount due to a retiring partner cannot be paid immediately, the unpaid balance is transferred to his Loan Account. This ensures transparency and enables repayment in installments, often with agreed interest.

Q5. Briefly explain the treatment of accumulated profits and losses at the time of retirement of a partner.

Answer: Accumulated profits and losses are distributed among all partners, including the retiring partner, in the old profit sharing ratio, ensuring fairness because these amounts arose before the partner's retirement.

4. True or False Questions.

Q1. The balance of the retiring partner’s capital account is always settled in cash only.

Answer: False.

Q2. Goodwill is adjusted among remaining partners in their new profit sharing ratio.

Answer: False.

Q3. Executor’s Account is prepared on death of a partner.

Answer: True.

Q4. On retirement of a partner, the old partnership firm is dissolved.

Answer: False.

3. Fill in the Blanks Questions.

Q1. The share which a continuing partner acquires from the retiring partner is called ________ ratio.

Answer: Gaining.

Q2. At the time of retirement, accumulated profits and losses are shared by partners in ________ ratio.

Answer: Old profit sharing.

Q3. Revaluation Account is prepared at the time of retirement to record ________ in the value of assets and liabilities.

Answer: Increase or decrease.

Q4. The unpaid amount due to a retiring partner is transferred to his ________ account.

Answer: Loan.

How learning reconstitution principles prepares Accountancy students

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