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C H A P T E R

Retirement and Death of a Partner

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Retirement of a Partner
When a partner ceases to be a partner of the firm (other than because of death), it is known as
retirement of a partner.
A partner may retire from the firm:
(i) if there is an agreement to that effect, or
(ii) if all the partners agree to his/her retirement, or
(iii) if the partnership is at will, by giving notice in writing to other partners of his or her intention
to retire.
It leads to reconstitution of the firm.
2. Death of a Partner
Death of a partner also leads to reconstitution of the firm. The firm may continue its business with
the remaining partners.
3. Revaluation of Assets
Revaluation of Assets means change in the value of assets, i.e., present value being different from
the book value of the assets.
4. Reassessment of Liabilities
Reassessment of Liabilities means reassessing the liabilities and determining the change, i.e.,
whether the liability is more or less than that shown in the books of account.
5. Gaining Ratio
Ratio in which the continuing partners acquire outgoing (retired or deceased) partner’s share is
called gaining ratio.
6. New Profit-sharing Ratio
Ratio in which the continuing partners (i.e., partners other than outgoing partner) decide to share
future profits and losses, is known as new profit-sharing ratio.
7. Profit and Loss Suspense Account
It is the account which is debited to adjust the share of profit of outgoing partner between the
date of last Balance Sheet and the date of death/retirement, when profit-sharing ratio of continuing
partners does not change.

SUMMARY OF THE CHAPTER

• Retirement of a Partner: When a partner ceases to be a partner it is called ‘Retirement of a Partner’.
• Adjustment on Retirement of a Partner: At the time of retirement of a partner, few accounting issues
arise and are settled, e.g., calculation of the new profit-sharing ratio and the gaining ratio, revaluation
of assets and liabilities, treatment of goodwill, accumulated profits, reserves and surplus, share in profits
or losses of the outgoing partner up to the date of retirement.