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Chapter 4, Reconstitution of Partnership, (Retirement of Partner),

14 Dec 2020 7:04 am

Balbharati, Solutions, for, Book-keeping, and, Accountancy, 12th, Standard, HSC, Maharashtra, State, Board,

State whether the following statement is true or false with reasons.

Gain ratio means New ratio minus Old ratio.- True

Explanation: As per definition, the profit-sharing ratio which is acquired by the continuing partners from the retiring partner is called gain ratio. If the gain ratio added to the old ratio we will get New ratio. It means New ratio = Old ratio + Gain ratio by interchanging the terms, we will get Gain ratio = New ratio – Old ratio.

Retiring partner’s share in profit up to the date of his retirement will be debited to Profit and Loss Suspense Account. – True

Explanation: If a partner retires from the firm during the accounting year, the profit or loss for the period from the date of last balance sheet to the date of retirement is calculated on the basis of last year’s profit or average profit and it is credited to retiring partner’s capital A/c and for time being it debited to a new account called Profit and Loss Expense A/c. This is because final accounts cannot be prepared on any date during the accounting year.

On the retirement of a partner, a sacrifice ratio is considered. – False

Explanation: On the retirement of a partner, his share is acquired by continuing partners in a certain proportion and it is nothing but a gain for them. Therefore, on the retirement of a partner instead of sacrifice ratio gain ratio is considered.

Retiring partner is called an outgoing partner. – True 
Explanation: When a person retires from the firm due to health issues, financial issues, or personal reasons then it is known as a person retires from the business, and for the business, he is an outgoing partner.
On retirement of a partner, remaining partner will share the goodwill in their profit sharing ratio. – False
Explanation. On the retirement of a partner, after giving retiring. partner’s share in goodwill and if goodwill is written off, then remaining partners will adjust the goodwill in their new profit sharing ratio. (If raised to full extent and written off)
Retiring partner is not entitled to share in general reserve and accumulated profit. – False
Explanation: General reserve and accumulated profit are created out of past undistributed profit, such profits are the outcome of hard work of all the partners including retiring partners. Hence, retiring partner’s has the right to share general reserve and accumulated profit. He is, therefore, entitled to get a share in general reserve and accumulated profit.


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