Partnership

Retirement/Death

Medium

Arrange the following steps involved in various accounting aspects of retirement/death of a partner in a sequence -

(A) Settlement of the amounts due to retired/deceased partner

(B) Ascertainment of new profit sharing ratio and gaining ratio

(C) Adjustment of capital, if required

(D) Revaluation of assets and liabilities

Choose the correct answer from the options given below:

(B), (D), (C), (A)

(A), (C), (B), (D)

(B), (A), (D), (C)

(C), (B), (D), (A)

✅ Correct Option: 1

When a partner retires or dies, the accounting treatment follows a specific logical sequence:

First, the new profit sharing ratio among continuing partners must be determined, along with the gaining ratio (which shows how much each continuing partner benefits from the outgoing partner's share). This is essential as it forms the basis for all subsequent adjustments.

Second, revaluation of assets and liabilities is carried out. The retiring/deceased partner is entitled to their share of profits/losses on assets and liabilities based on current market values, not historical book values. Any profit or loss from revaluation is distributed among all partners (including the outgoing partner) in their old profit sharing ratio.

Third, adjustment of capital is made if required. After revaluation, the continuing partners may decide to adjust their capitals to make them proportionate to their new profit sharing ratio. Any adjustment is settled between the continuing partners only through their current accounts.

Fourth, settlement of amounts due to the retired/deceased partner takes place. The total amount standing to the credit of the outgoing partner (including their capital, share of goodwill, revaluation profit, reserves, etc.) is either paid immediately or transferred to their loan account for gradual payment.

The sequence is: (B) → (D) → (C) → (A)

Correct Answer: Option 1

2026: 13 May Shift 2

At the time of death of a partner, if general reserve appears in the balance sheet, it should be credited to:

2026: 29 May Shift 2

In the absence of any information regarding the acquisition of share in profit of the retiring/deceased partner by the remaining partners, it is assumed that they will acquire his/her share in _____

2025: 31 May Shift 1

On the death of an existing partner, in case the value of a Liability decreases then which account will be debited?

2026: 11 May Shift 1

The retiring partner is entitled to his share of goodwill at the time of retirement because goodwill has been earned by the firm through the efforts of all existing partners. If goodwill does not appear in the firm's books of accounts, the correct journal entry for treatment of goodwill in this case is:

2026: 24 May Shift 1

Mohit, Sohan and Rahul are partners sharing profits in the ratio of 2:2:1. Sohan died on 30th September 2025. According to the deed, his legal representatives are entitled to:

(a) Balance in Capital Account :Rs. 60,000

(b) His Share of goodwill is valued at :Rs. 19,200

(d) Interest on capital account @ 12% p.a.

Amount payable to Sohan's Executors A/c will be:

2026: 12 May Shift 1

Akash, Bhupesh, and Charan are partners in a firm sharing profits in the ratio of 3:2:1. Bhupesh retired and goodwill of the firm was valued at Rs. 60,000. Akash and Charan continue the business, sharing profits in the ratio of 3:1. What will be the journal entry for adjustment of goodwill in this case?

Particulars	Dr. Amount	Cr. Amount
Akash's Capital A/c Dr.	15,000
Charan's Capital A/c Dr.	5,000
To Bhupesh's Capital A/c		20,000

Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Goodwill A/c Dr.		20,000
	To Bhupesh's Capital A/c			20,000

Particulars	Dr. Amount	Cr. Amount
Bhupesh's Capital A/c Dr.	20,000
To Akash's Capital A/c		15,000
To Charan's Capital A/c		5,000

Date	Particulars	L.F.	Dr. Amount	Cr. Amount
	Bhupesh's Capital A/c Dr.		20,000
	To Goodwill A/c			20,000

Solution

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