Class 12 Accountancy- Retirement of a Partner
🔹 Meaning of Retirement
When a partner leaves the partnership firm voluntarily with the consent of
all other partners, it is called retirement of a partner. The firm continues
its business with the remaining partners.
🔹 Reasons for Retirement
Old age
Ill health
Mutual agreement
Better opportunities
Personal reasons
🔹 Accounting Treatment on Retirement
The following adjustments are required at the time of retirement:
1️⃣ Calculation of New Profit Sharing Ratio (NPSR)
(a) Gaining Ratio
It shows the increase in profit share of remaining partners.
Gaining Ratio = New Share – Old Share
👉 Gaining partners compensate the retiring partner for goodwill.
2️⃣ Treatment of Goodwill
(a) When Goodwill Appears in Balance Sheet
Goodwill is written off in old ratio.
Credited to all partners including retiring partner.
🔹 Meaning of Retirement
When a partner leaves the partnership firm voluntarily with the consent of
all other partners, it is called retirement of a partner. The firm continues
its business with the remaining partners.
🔹 Reasons for Retirement
Old age
Ill health
Mutual agreement
Better opportunities
Personal reasons
🔹 Accounting Treatment on Retirement
The following adjustments are required at the time of retirement:
1️⃣ Calculation of New Profit Sharing Ratio (NPSR)
(a) Gaining Ratio
It shows the increase in profit share of remaining partners.
Gaining Ratio = New Share – Old Share
👉 Gaining partners compensate the retiring partner for goodwill.
2️⃣ Treatment of Goodwill
(a) When Goodwill Appears in Balance Sheet
Goodwill is written off in old ratio.
Credited to all partners including retiring partner.
