Reconstitution of a Partnership Firm: Retirement or Death of a Partner, Class 12

What Reconstitution of a Partnership Firm – Retirement/Death of a Partner is about

Weightage: This chapter is part of Part A: Accounting for Partnership Firms, which carries 36 of the 80 theory marks together with Accounting for Partnership: Basic Concepts, Reconstitution of a Partnership Firm – Admission of a Partner and Dissolution of Partnership Firm.Source: CBSE Accountancy (055) syllabus 2026-27, Part A: Accounting for Partnership Firms

In real board papers: asked in 2 of the 2 board papers we hold (2026 to 2026), on average 12.5 marks per paper. See the questions

Key concepts

New ratio and gaining ratio

NCERT section 3.2, 3.3

The gaining ratio is the ratio in which the remaining partners acquire the outgoing partner's share. Gain = new share − old share.

• No new ratio given: the remaining partners are assumed to continue in their old ratio, so the gaining ratio equals their old ratio.
• Outgoing share taken in a stated ratio: new share = old share + the stated part of the outgoing share.
• New ratio given: gain = new − old for each partner; a partner may gain nothing or even sacrifice.

Compare: on admission, sacrificing ratio = old − new; on retirement, gaining ratio = new − old.

Worked example

Suppose A, B and C share profits 5 : 3 : 2. C retires and A and B agree to share future profits 3 : 2. Calculate the gaining ratio. [1 mark]

Try it first, then show the solutionSolution

1. A: 3/5 − 5/10 = 6/10 − 5/10 = 1/10.
2. B: 2/5 − 3/10 = 4/10 − 3/10 = 1/10.

Answer: Gaining ratio 1 : 1 (not 3 : 2).

Treatment of goodwill on retirement or death

NCERT section 3.4

The outgoing partner gives up his share of future (super) profit, so he is paid his share of goodwill by the gaining partners. Under AS 26:

• Gaining partners' capital accounts Dr (gaining ratio), To retiring/deceased partner's capital account (his share of the firm's goodwill).
• If goodwill already appears in the books, first write it off to all partners (including the outgoing one) in the old ratio.
• Hidden goodwill: if the firm agrees to pay the outgoing partner a lump sum that exceeds his capital after all adjustments, the excess is his share of goodwill and is debited to the gaining partners.

Worked example

Suppose X, Y and Z share profits 3 : 2 : 1. Z retires. Goodwill of the firm is valued at ₹1,20,000. X and Y share future profits equally. Pass the entry for goodwill. [3 marks]

Try it first, then show the solutionSolution

1. Z's share = 1,20,000 × 1/6 = ₹20,000.
2. Gains: X 1/2 − 3/6 = 0; Y 1/2 − 2/6 = 1/6. Only Y gains.

3. Particulars	Dr (₹)	Cr (₹)
   Y's Capital A/c ... Dr	20,000
   To Z's Capital A/c		20,000
   (Being Z's share of goodwill adjusted to the gaining partner)

Answer: Y's Capital A/c Dr ₹20,000 To Z's Capital A/c ₹20,000; X is not debited because he gains nothing.

Revaluation and reserves on retirement

NCERT section 3.5, 3.6

Revaluation is done exactly as on admission: a Revaluation Account is credited with increases in assets and decreases in liabilities and debited with decreases in assets and increases in liabilities (including new provisions). The profit or loss goes to all partners, including the outgoing one, in the old ratio.

Reserves, a credit balance of Profit and Loss Account, and accumulated losses are also distributed to all partners in the old ratio, so the outgoing partner receives his share of past profits.

Worked example

Suppose on Tina's retirement, building (₹3,00,000) is appreciated by 10%, stock is reduced by ₹14,000, a 5% provision is made on debtors of ₹60,000 and furniture (₹70,000) is depreciated by 10%. Partners Ravi, Sohan and Tina share 3 : 2 : 1. Prepare the Revaluation Account. [3 marks]

Try it first, then show the solutionSolution

1. Gain: building ₹30,000. Losses: stock 14,000 + provision 3,000 + furniture 7,000 = ₹24,000.
2. Profit ₹6,000 in 3 : 2 : 1.
3. Revaluation Account

   Dr: Particulars	₹	Cr: Particulars	₹
   To Stock A/c	14,000	By Building A/c (10% of 3,00,000)	30,000
   To Provision for Doubtful Debts A/c (5% of 60,000)	3,000
   To Furniture A/c (10% of 70,000)	7,000
   To Profit: Ravi's Capital A/c (3/6)	3,000
   To Profit: Sohan's Capital A/c (2/6)	2,000
   To Profit: Tina's Capital A/c (1/6)	1,000
   Total	30,000	Total	30,000

Answer: Revaluation profit ₹6,000: Ravi ₹3,000, Sohan ₹2,000, Tina ₹1,000.

Settling the amount due: cash, loan or both

NCERT section 3.1, 3.7

Amount due to a retiring partner = his capital (and current account) balance + share of reserves and accumulated profits + share of revaluation profit + share of goodwill (− the corresponding losses, drawings and interest on drawings).

It can be paid at once (capital account Dr, To Bank), transferred to his loan account (capital account Dr, To Retiring Partner's Loan A/c), or partly both. A loan is usually repaid in instalments with interest: each year credit the loan account with interest on the opening balance and debit it with the payment (instalment + interest).

Worked example

Suppose ₹1,00,000 due to Tina is transferred to her loan account on 31st March 2026, to be repaid in two equal annual instalments with interest at 10% p.a. on the unpaid balance. Prepare her loan account for two years. [4 marks]

Try it first, then show the solutionSolution

1. Tina's Loan Account (year ended 31st March 2027)

   Dr: Particulars	₹	Cr: Particulars	₹
   To Bank A/c (instalment 50,000 + interest 10,000)	60,000	By Balance b/d (1st April 2026)	1,00,000
   To Balance c/d	50,000	By Interest A/c (10% on 1,00,000)	10,000
   Total	1,10,000	Total	1,10,000

2. Tina's Loan Account (year ended 31st March 2028)

   Dr: Particulars	₹	Cr: Particulars	₹
   To Bank A/c (instalment 50,000 + interest 5,000)	55,000	By Balance b/d	50,000
   		By Interest A/c (10% on 50,000)	5,000
   Total	55,000	Total	55,000

Answer: Year 1 payment ₹60,000 (closing balance ₹50,000); year 2 payment ₹55,000 (loan closed).

Death: share of profit till the date of death

NCERT section 3.9

Death can occur mid-year, so the deceased partner's claim also includes his share of profit (and interest on capital, less interest on drawings, if provided) from the last balance sheet date to the date of death. Rather than close the books, the share is estimated:

• Time basis: last year's profit (or the average of a few years) × months to death/12 × his share.
• Sales basis (turnover): profit rate = last year's profit ÷ last year's sales; profit to date = sales to date × profit rate; × his share.

The entry is Profit and Loss Suspense A/c Dr, To Deceased Partner's Capital A/c. The suspense account is closed at the year-end against the remaining partners' profit.

Worked example

Suppose Dhruv, with a 1/4 share, dies on 31st August 2025. In 2024-25 the firm earned a profit of ₹2,70,000 on sales of ₹18,00,000. Sales from 1st April to 31st August 2025 were ₹6,00,000. Find Dhruv's share of profit till death (i) on the basis of last year's profit, (ii) on the basis of sales. [3 marks]

Try it first, then show the solutionSolution

1. (i) 2,70,000 × 5/12 × 1/4 = ₹28,125.
2. (ii) Profit rate = 2,70,000 ÷ 18,00,000 = 15%; profit to death = 6,00,000 × 15% = ₹90,000; Dhruv's share = ₹22,500.

3. Particulars	Dr (₹)	Cr (₹)
   Profit and Loss Suspense A/c ... Dr	28,125
   To Dhruv's Capital A/c		28,125
   (Being share of profit till date of death (time basis))

Answer: (i) ₹28,125; (ii) ₹22,500. The sales basis gives less because sales in these five months were below the yearly average pace.

Deceased partner's capital account and executor's account

NCERT section 3.9

After all credits (capital, reserves, revaluation profit, goodwill, profit till death, interest on capital) and debits (drawings, interest on drawings, losses), the balance of the deceased partner's capital account is transferred to his Executor's Account: Deceased Partner's Capital A/c Dr, To Executor's A/c. Payments to the executor are debited to the executor's account. Any unpaid balance appears as a liability (Executor's Loan) in the balance sheet.

Worked example

Suppose the balance in a deceased partner's capital account after all adjustments is ₹2,05,000. The executor is paid ₹55,000 immediately and the rest later. Show the executor's account up to that date. [2 marks]

Try it first, then show the solutionSolution

1. Isha's Executor's Account

   Dr: Particulars	₹	Cr: Particulars	₹
   To Bank A/c	55,000	By Isha's Capital A/c	2,05,000
   To Balance c/d (payable)	1,50,000
   Total	2,05,000	Total	2,05,000

Answer: Executor's account shows ₹1,50,000 still payable.

Adjusting remaining partners' capitals

NCERT section 3.8

Sometimes the remaining partners agree that their capitals should be in the new ratio, often with a fixed total capital. Required capital = total capital × new share. Compare it with each partner's capital after all adjustments; the partner short of the figure brings in cash and the one with a surplus withdraws (or the difference goes through current accounts). If the total is not fixed, it is often taken as the total of the remaining partners' adjusted capitals, sometimes increased by the amount paid to the retiring partner.

Worked example

Suppose after A's retirement, B and C (new ratio 3 : 2) have adjusted capitals of ₹2,10,000 and ₹1,30,000 and decide the firm's total capital will be ₹4,00,000 in their new ratio. How much does each bring in or withdraw? [3 marks]

Try it first, then show the solutionSolution

1. Required: B 3/5 × 4,00,000 = ₹2,40,000; C 2/5 × 4,00,000 = ₹1,60,000.
2. B brings 2,40,000 − 2,10,000 = ₹30,000; C brings 1,60,000 − 1,30,000 = ₹30,000.

Answer: Each brings in ₹30,000 (Bank A/c Dr, To B's and C's Capital A/c).

Reconstitution of a Partnership Firm – Retirement/Death of a Partner in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Gaining Ratio
• Goodwill on Retirement or Death of a Partner
• Deceased Partner's Share of Profit and Executor's Account

Reconstitution of a Partnership Firm – Retirement/Death of a Partner: key facts

Gain of a remaining partner

New share − old share

New share when the outgoing share is taken in a stated ratio

Old share + outgoing share × stated proportion

Outgoing partner's share of goodwill

Firm's goodwill × outgoing partner's share; debited to gaining partners in the gaining ratio

Hidden goodwill on retirement

Amount agreed to be paid − capital after all adjustments (excluding goodwill)

Profit till death (time basis)

Last year's (or average) profit × months to death/12 × deceased partner's share

Profit till death (sales basis)

Sales to date × (last year's profit ÷ last year's sales) × deceased partner's share

Interest on loan to retiring partner

Opening loan balance × rate × period/12

Payment each year = instalment + interest.

How the board asks Reconstitution of a Partnership Firm – Retirement/Death of a Partner

The question patterns to expect, and the method that works for each.

Tricks to remember Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Short memory aids. Say each one aloud once, then use it on a question the same day.

• Mirror of admission

  Admission: old − new = sacrifice, newcomer pays. Retirement: new − old = gain, gainers pay.

  Use it when: Choosing the ratio and who is debited for goodwill.

• All old partners share the old stuff

  Reserves, revaluation and existing goodwill: everyone, including the leaver, in the old ratio.

  Use it when: Reserve and revaluation entries.

• Suspense for the dead

  Profit till death goes through Profit and Loss Suspense.

  Use it when: Death entries.

• Instalment + interest

  Each year: interest on what is still owed, plus one instalment.

  Use it when: Loan accounts.

Reconstitution of a Partnership Firm – Retirement/Death of a Partner: board-level solved questions

Ordered from board level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section E style)

Read the situation, then answer every part. In the board paper this is a 4-mark question split into 1 + 1 + 2 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Reconstitution of a Partnership Firm – Retirement/Death of a Partner

The slips examiners see most often, and what to write instead.

• ✗Mistake: Debiting goodwill to remaining partners in the new ratio

  Confusing the new ratio with the gaining ratio.

  Wrong working

  X 3/5 and Y 2/5 of ₹20,000

  Right working

  Gain = new − old for each; debit only gaining partners

  ✓Do this: Always calculate gains when a new ratio is given.

  Usually costs: 1-2 marks.

• ✗Mistake: Leaving the outgoing partner out of revaluation and reserves

  Thinking he is leaving, so he does not share.

  ✓Do this: Revaluation and reserves go to all old partners, including the retiring or deceased one, in the old ratio.

  Usually costs: 1-2 marks; capital and balance sheet wrong.

• ✗Mistake: Charging interest on the original loan every year

  Not reducing the balance.

  ✓Do this: Interest is on the opening balance of each year.

  Usually costs: 1-2 marks in a loan account.

• ✗Mistake: Crediting profit till death to P&L Appropriation instead of P&L Suspense

  Treating it as normal appropriation.

  ✓Do this: Profit and Loss Suspense A/c Dr, To Deceased Partner's Capital A/c.

  Usually costs: 1 mark.

• ✗Mistake: Using the wrong months for death mid-year

  Counting to the year-end instead of from the last balance sheet date to death.

  ✓Do this: Count months from 1st April to the date of death.

  Usually costs: 1 mark.

NCERT exercise guide: Reconstitution of a Partnership Firm – Retirement/Death of a Partner

What each exercise in the NCERT chapter tests, how to approach it, and a question of the same kind solved step by step. Questions here are written in our own words.

Reconstitution of a Partnership Firm – Retirement/Death of a Partner: previous year questions

• Asked in 2 of the 2 board papers we hold (2026 to 2026), on average 12.5 marks per paper; 14 questions in all, counting OR alternatives. In 4 of 4 sample papers.

Counted from the real papers on our previous year papers page, not estimated. Average marks are over every board paper we hold, with an OR pair counted once. Chapter tags are ours.

Solved board questions from Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Real questions from recent papers. Try each one first, then open our step-by-step solution with marks per step.

Every Reconstitution of a Partnership Firm – Retirement/Death of a Partner question, by year

Practice questions on Reconstitution of a Partnership Firm – Retirement/Death of a Partner

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQBoard level

   If the remaining partners continue to share profits in their old ratio after a partner retires, the gaining ratio is:
   (a) equal
   (b) their old ratio
   (c) the retiring partner's ratio
   (d) the capital ratio

   Hint

   New − old keeps the same proportions.

   Answer

   (b) their old ratio

2. Q2 · 1 mark · MCQBoard level

   The amount due to a retiring partner that is not paid immediately is transferred to:
   (a) Realisation A/c
   (b) Retiring Partner's Loan A/c
   (c) Revaluation A/c
   (d) Executor's A/c

   Hint

   He becomes a lender.

   Answer

   (b)

3. Q3 · 3 marks · Short answerBoard level

   Distinguish between sacrificing ratio and gaining ratio on three bases.

   Hint

   Meaning, formula, when used.

   Answer

   Meaning: share given up by old partners vs share acquired by remaining partners. Formula: old − new vs new − old. When: admission (or change in ratio) vs retirement or death (or change in ratio).

4. Q4 · 3 marks · Short answerBoard level

   Suppose a retiring partner's capital is ₹2,00,000, his share of general reserve is ₹12,000, his share of goodwill ₹30,000 and his share of revaluation loss ₹6,000. Calculate the amount due to him.

   Hint

   Add credits, subtract the loss.

   Answer

   2,00,000 + 12,000 + 30,000 − 6,000 = ₹2,36,000.

5. Q5 · 3 marks · Short answerHarder board level

   Suppose A, B and C share 4 : 3 : 2. C retires and his share is taken by A and B in the ratio 2 : 1. Calculate the new ratio.

   Hint

   Split 2/9 in 2 : 1.

   Answer

   A 16/27, B 11/27 → 16 : 11.

6. Q6 · 3 marks · Short answerHarder board level

   Suppose a partner with a 3/10 share dies on 30th September 2025. Profits of the last three years were ₹1,60,000, ₹2,00,000 and ₹2,40,000. His share of profit till death is based on average profit. Calculate it and pass the entry.

   Hint

   Average first, then 6/12.

   Answer

   Average ₹2,00,000; 2,00,000 × 6/12 × 3/10 = ₹30,000. Profit and Loss Suspense A/c Dr 30,000 To Deceased Partner's Capital A/c 30,000.

7. Q7 · 4 marks · Short answerHarder board level

   Suppose on C's retirement (old ratio A : B : C = 2 : 2 : 1) the books show a general reserve of ₹40,000, a debit balance of Profit and Loss Account of ₹15,000 and a revaluation loss of ₹10,000. Pass the journal entries.

   Hint

   All in the old ratio, including C.

   Answer

   General Reserve A/c Dr 40,000 To A 16,000, B 16,000, C 8,000. A 6,000, B 6,000, C 3,000 Dr To Profit and Loss A/c 15,000. A 4,000, B 4,000, C 2,000 Dr To Revaluation A/c 10,000.

8. Q8 · 4 marks · Short answerHOTS / competency

   Suppose after A's retirement, B and C share 3 : 2 and their adjusted capitals are ₹2,10,000 and ₹1,30,000. They fix the total capital at ₹4,00,000 in the new ratio. How much does each bring or withdraw, and what would change if the total capital were instead to equal their present combined capital?

   Hint

   Required = total × new share.

   Answer

   At ₹4,00,000: B needs 2,40,000 (brings 30,000), C needs 1,60,000 (brings 30,000). At ₹3,40,000: B needs 2,04,000 (withdraws 6,000), C needs 1,36,000 (brings 6,000).

9. Q9 · 1 mark · Assertion-reasonHOTS / competency

   Assertion (A): The balance in a deceased partner's capital account is transferred to his executor's account.
   Reason (R): The executor is legally entitled to receive the amount due to the deceased partner.
   (a) Both true and R explains A (b) Both true, R does not explain A (c) A true, R false (d) A false, R true

   Hint

   Who stands in the deceased partner's place?

   Answer

   (a)

10. Q10 · 6 marks · Long answerHarder board level

    Suppose ₹1,50,000 due to a retiring partner is to be repaid in three equal annual instalments with interest at 8% p.a. on the unpaid balance. Prepare the loan account for three years.

    Hint

    Interest falls each year.

    Answer

    Loan Account, year 1

    Dr: Particulars	₹	Cr: Particulars	₹
    To Bank A/c (50,000 + 12,000)	62,000	By Balance b/d	1,50,000
    To Balance c/d	1,00,000	By Interest A/c (8%)	12,000
    Total	1,62,000	Total	1,62,000

    Loan Account, year 2

    Dr: Particulars	₹	Cr: Particulars	₹
    To Bank A/c (50,000 + 8,000)	58,000	By Balance b/d	1,00,000
    To Balance c/d	50,000	By Interest A/c (8%)	8,000
    Total	1,08,000	Total	1,08,000

    Loan Account, year 3

    Dr: Particulars	₹	Cr: Particulars	₹
    To Bank A/c (50,000 + 4,000)	54,000	By Balance b/d	50,000
    		By Interest A/c (8%)	4,000
    Total	54,000	Total	54,000

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.What is the gaining ratio?Show answer

   The ratio in which remaining partners acquire the outgoing partner's share: new share − old share.

2. 2.Which accounts are debited for the outgoing partner's share of goodwill?Show answer

   Gaining partners' capital accounts, in the gaining ratio.

3. 3.How is existing goodwill treated on retirement?Show answer

   Written off to all partners in the old ratio.

4. 4.Through which account is a deceased partner's share of profit credited?Show answer

   Profit and Loss Suspense Account.

5. 5.What is the sales-basis formula for profit till death?Show answer

   Sales to date × (last year's profit ÷ last year's sales) × share.

6. 6.Where is the balance of a deceased partner's capital transferred?Show answer

   To his executor's account.

7. 7.On what is interest on a retiring partner's loan calculated?Show answer

   On the unpaid (opening) balance of each year.

8. 8.What is hidden goodwill on retirement?Show answer

   The excess of the amount paid over the outgoing partner's capital after all adjustments.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Can you compute the gaining ratio when a new ratio is given?
• ☐Can you split the outgoing share in a stated ratio?
• ☐Can you debit only the gaining partners for goodwill?
• ☐Can you write off existing goodwill in the old ratio first?
• ☐Can you find hidden goodwill from a lump-sum settlement?
• ☐Can you include the outgoing partner in revaluation and reserves?
• ☐Can you prepare a loan account with reducing interest?
• ☐Can you estimate profit till death on time and sales basis?
• ☐Can you prepare a deceased partner's capital and executor's accounts?
• ☐Can you tally the balance sheet after retirement?

Reconstitution of a Partnership Firm – Retirement/Death of a Partner: frequently asked questions