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FAQs on Class 12 Accountancy TS Grewal Solutions Volume 1 Chapter 6 - Retirement/Death of a Partner
1. What happens when a partner retires or dies?
A partner's interest in a partnership firm is extinguished when he retires or passes away, which results in the firm's dissolution or reconstitution. A retiring partner or outgoing partner is a partner who leaves a firm. The grounds for a partner's retirement could be that he is too old, that he has a better opportunity in a different area, that he dislikes the co-partner's attitude, or any other reason. And obviously, death is inevitable and it can strike at any hour. To learn more about the topic, you can click here.
2. How are accumulated reserves, undistributed profits, and losses adjusted?
The accumulated reserves, undistributed profits, and losses are adjusted in the following ways: Any reserves or undistributed earnings that appear on the liabilities side of the Balance Sheet during the time of retirement are historical profits that were created to consolidate the firm's financial condition. The retiring partner has a claim to these profits. As a result, the accumulated reserve or undistributed profits/revenue should be divided amongst all partners in their original profit or loss sharing ratio. They do not appear in the Balance Sheet after the distribution is finished.
3. What is the meaning of revaluation of assets and liabilities?
At the time of a partner's retirement, as well as at the time of admission, a revaluation of assets and liabilities is required. The reassessment follows similar guidelines as the process of admission. Even if the Partnership Deed is silent, revaluing assets and liabilities is a good idea. A Profit and Loss Adjustment Account or Revaluation Account is made if everyone agrees to revalue the assets and liabilities upon a partner's retirement. The profit or loss from this account is distributed in the old ratio to all partners, including the retiring partner. Therefore, the assets and liabilities will be noted down at their new values in the books.
4. How is the new profit sharing ratio, gaining ratio, and sacrificing ratio calculated?
The partnership firm will be rebuilt if one of the partners dies or retires. The profit-sharing ratios of the remaining partners will alter significantly. Let's have a look at how the new profit sharing ratio, gaining, and sacrificing ratios are computed.
New profit sharing Ratio: The ratio by which the partners arrange to split future profits and losses.
Gaining Ratio: The ratio in which the partners have agreed to receive a portion of the profits generated by the other partners.
Sacrificing Ratio: In this ratio, the partners have agreed to give up their portion of profit to benefit the other partners. Old Ratio - New Ratio = Sacrificing Ratio.
5. How to prepare for this chapter - Retirement/Death of a partner?
To prepare for the chapter - retirement, and death of a partner, it is important to learn about its basic concepts. A student needs to be thorough with concepts and terms like accumulated reserves and undistributed profits and losses, revaluation of assets and liabilities, new profit-sharing, gaining ratio, and sacrificing ratio. A student needs to develop a strong foundation to consolidate his knowledge further on this topic. Students should also practice solving questions through sample papers. To get free study materials, students can explore the Vedantu app and website.