NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4

NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4

Accounting is a backbone of the contemporary world as well as the commercial sector. . A professional accountant – who knows how to apply their understanding of money, arithmetic, statistics, and economics to build a firm – is required to manage the money matters for any organisation. Class 12 Accountancy Partnership Accounts Chapter 4 is about Reconstitution of a Partnership Firm:  Retirement / Death of a Partner. The Chapter explains that after making appropriate adjustments in respect of goodwill, revaluation of assets and liabilities, and transfer of accumulated profits and losses, a business must calculate the sum owing to the retiring partner and the legal representatives.

From the start of the academic year, most Class 12 students are concerned about how well they will perform in the board exams. Students having Accounts as a subject are significantly affected by this dilemma, since they have a vast syllabus to cover for Accountancy. Getting access to good study materials such as NCERT Solutions from Extramarks  is one of the best ways to get through this subject. Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4 is prepared by subject matter experts in the Accounting field with years of teaching experience.

Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4 covers important Chapter notes with explanations using real-life scenarios and case studies. So it proves to be quite a helpful resource for Class 12 students pursuing Accountancy. Further, students can refer to various other study materials of all Classes, such as NCERT books, CBSE revision notes, CBSE sample papers, CBSE  past years’ question papers, and others on Extramarks website.

Key Topics Covered In NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4

 Following are the major topics  covered in the NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4 – Reconstitution of a Partnership Firm: Retirement/Death of a Partner.

Now let us look into each of the topics covered in the Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4 study course materials.

What is  meant by  retirement of a partner?

A partner may decide to retire or leave from the firm for various reasons, including his poor health, age, or a change in the nature of the business. A partner in a partnership at will can leave at any moment. Retirement causes an organisation to be reconfigured, with the contribution ratio and profit-sharing ratios changing. The capital, revaluation of profit or loss, and goodwill are all distributed to the retiring partner.

Ascertaining the Amount Due to Retiring/Deceased Partner

This topic includes scenarios such as identifying the retiring / deceased partner’s claim against the company and explaining the settlement mechanism; describing the retiring partner’s loan account, if applicable, etc.  In the event of a partner’s death, sketch out the enforcer’s account and the recreated enterprise’s financial sheet.

The total amount to be paid to the retiring partner (in the event of retirement) and the legal officials/executors (in the event of death) includes the following:

• His capital account’s credit balance.
• His current account’s credit balance (if any).
• Share of goodwill between partners.
• His percentage of profits or reserves.
• His part of the asset and liability revaluation profit.
• Up to the date of retirement/death, his portion of gains.
• Interest on his capital up to the date of retirement/death, if applicable.
• Commission/salary owing to him until his retirement/death date, if any.

The modalities for calculating the amount for retiring partners is very complex. Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4 has given few tabular examples of how this is accomplished. We highly recommend students to register on Extramarks website to get easy access for our NCERT solutions.

Gaining Ratio

A gaining ratio is a financial measure that helps determine the proportion by which a firm’s surviving partners will share the earnings of an existing partner in the case of his death or retirement. The gaining ratio is the part in which they split the earnings. It’s also known as the difference between the old and new profit-sharing ratios.

New Profit Sharing Ratio

Meaning: It is the portion of future earnings and losses that all partners, including new partners, will participate in.

Computation: Old Ratio – Sacrificing Ratio = New Profit Sharing Ratio

Gaining Ratio

Meaning: The proportion in which the remaining partners get the share of the retiring or deceased partner.

Computation: New Ratio – Old Ratio = Gaining Ratio

The calculations for gaining ratios are further elaborated in our Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4 study guides. 

Treatment of Goodwill

Goodwill is an intangible asset that reflects the value generated by a company in accounting terms. The term “goodwill” has a broad definition and is frequently used when one company buys another.

The price that corporations are ready to pay for acquiring another company at a price that is higher than its market worth is known as goodwill.

The accounting handling of goodwill in various contexts is crucial when computing for partnership enterprises:

• Because the company has gained goodwill via  hard work and dedication of all current partners, the retiring or deceased partner is entitled to his portion of goodwill during his death or retirement.
• As a result, when a partner dies or retires, goodwill is valued according to an agreement among the partners, with the continuing partners (who have gained due to the accretion of the retiring/dead partner’s share of gain) compensating the deceased/retiring partner for his portion of goodwill in their respective gaining ratio.

In this case, the accounting treatment for goodwill will be determined by whether or not goodwill already exists on the books of the firm. Refer to NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4 for understanding this topic around Treatment of Goodwill in further detail.

Adjustment for Revaluation of Assets and Liabilities

There may be assets that were not shown at their current values at the death or retirement of a partner. Similarly, there may be a few liabilities that have been valued at a different level than the enterprise’s responsibility.

However, there may be certain unrecorded liabilities and assets that must be included in the accounts. A Revaluation A/c is defined in the case of a partner’s admission with the goal of determining the net gain (loss) on revaluation of liabilities and assets and bringing unrecorded items into the enterprise’s books, and the same is transferred to the capital a/c of the retiring/dead partners in their current profit sharing ratio.

Adjustment of Accumulated Profits and Losses

Occasionally, an enterprise’s Balance Sheet will show accrued gains in the form of a general reserve on the reserve fund and accrued losses in the form of a gain and loss a/c debit balance. The retired or deceased partner is entitled to a portion of the earnings and is also liable for sharing the losses. These accumulated earnings or losses are ideally suited to the partners and should be transferred to the partners’ capital accounts in their previous profit sharing ratio.

Adjustment of Reserves and Accumulated Profits or Losses is explained explicitly  via case studies in Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4.   The key points are listed  below: :

• Similarly, if any accumulated loss appears on the assets side of the balance sheet (B/S), previous partners’ current or capital accounts should be debited in the old ratio (OR).
• All partners (including the new partner) may agree to record the reserves in the books at their true or agreed-upon value.

Disposal of Amount Due to Retiring Partner

The account of the retiring partner is settled according to the terms and conditions of the partnership deed, i.e., in one lump-sum payment or in several instalments, either with or without interest as agreed or partly in cash straight away and half in instalments at the agreed intermissions. Section 37 of the Indian Partnership Act of 1932, is relevant in the absence of any deed, which stipulates that retiring or moving out partner has the option of receiving interest at 6% per year until the date of payment or a share of gains achieved with their money (i.e., which is based on the capital ratio).

As a result, the complete sum owed to the retiring partner, as calculated after all changes and adjustments, must be immediately reimbursed to the retiring or exiting partner. If the business is unable to make the payment straight away, the overdue amount is moved to the retiring or exiting Partner’s Loan A/c.

Adjustment of Partner’s Capital

When one of the partners dies or retires, the remaining partners may decide to change their capital contributions in their profit sharing ratio (PSR). Until and unless indicated differently, the whole sum of the balance in the capital of the partners who will continue may be viewed as the total capital of the new firm. The entire capital of the firm is then distributed among the remaining partners according to the new profit sharing ratio (NPSR), and the shortfall or excess of capital in the individual capital accounts may be determined. The removal of cash contributions will alleviate the shortage or surplus.

Death of a Partner

A partnership firm is a sort of business that is formed by two or more people with the shared goal of generating money. Certain occurrences, such as the admission of a new partner, and the retirement or death of an existing partner, cause the organisation to alter. When a partner dies, the partnership structure is adjusted in the same manner that it does when a partner retires. This article discusses the implications of such a transformation.

What is meant by a deceased partner?

The Indian Partnership Act of 1932 states that due to his death, a deceased partner has terminated the partnership. The demise of a partner does not terminate a contract between the partners of a company, and the estate of a deceased partner is not liable for any act of the firm performed after his death.

When a partner expires, the accounting procedure is as follows:

• When a partner retires, and in the case of a deceased partner, his belongings are passed to his legal enforcers and settled in the same manner as the partner who retires.
• However, there is one key distinction: although retirement occurs typically at the end of an accounting period or financial year, a partner’s death might occur at any moment.
• As a result, a partner’s rights include his share of gains or losses, interest on draws (if any), and interest on capital from the final date of the Balance Sheet until the date of his death. Of these, the key issue is the computation of profit over a reasonable time.

Register with Extramarks  now  and get access to NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4 and  other study materials that will help students score well in Accounting  and other subjects.

NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4 – Exercise and Solutions

Extramarks has a variety of study material including Chapter notes, revision notes, question and answer solutions, solve exam papers, etc. that will help students to study and revise thoroughly following the CBSE syllabus for their board exams and excel in academics.

Click on the below links to view NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4: 

• Class 12 Accounting Chapter 4: Very Short Answer Type Questions
• Class 12 Accounting Chapter 4: Short Answer Type Questions
• Class 12 Accounting Chapter 4: Long Answer Type Questions

In addition, students can also explore NCERT Solutions for other Classes as well.  Extramarks has meticulously prepared solutions and notes after extensive research especially for students to study and excel in their exams.

• NCERT Solutions Class 1
• NCERT Solutions Class 2
• NCERT Solutions Class 3
• NCERT Solutions Class 4
• NCERT Solutions Class 5
• NCERT Solutions Class 6
• NCERT Solutions Class 7
• NCERT Solutions Class 8
• NCERT Solutions Class 9
• NCERT Solutions Class 10
• NCERT Solutions Class 11
• NCERT Solutions Class 12

By getting access to Extramarks NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4, Class 12 students can learn and remember the concepts of Reconstitution of a Partnership Firm: Retirement/Death of a Partner easily.

Key Features of NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4

To perform well in Class 12 board examinations, it is important for students to go through the NCERT solutions. To help make this easy for students, Extramarks has prepared NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4. Here, we give you some reasons why you should choose Extramarks:

• These solutions help students understand the concepts and not just  simply memorising  them.
• The solutions have been formed after deep analysis for a better comprehension of students.
• Extramarks offers many additional study materials other than NCERT Solutions Class 12 Accountancy Partnership Accounts Chapter 4. These include revision notes, solved questions and answers from past years’ exam papers, etc.