Reconstitution of a Partnership Firm – Retirement/Death of a PartnerClass 12 Accountancy Part 1 Case Study Questions

Asha, Deepti, and Nisha are partners in a firm, sharing profits and losses in the ratio of 3:2:1. The partnership has been profitable, but Deepti has decided to retire due to health reasons. On her retirement, the existing partnership deed comes to an end, and a new one needs to be framed for the continuing partners, Asha and Nisha. In the absence of any specific agreement, the continuing partners acquire the share of the retiring partner in their old profit sharing ratio. However, in this case, a new agreement is made where Asha and Nisha decide to acquire Deepti's share in the ratio of 2:1. This acquisition directly impacts their future profit shares and determines how they will compensate Deepti for her share of goodwill.

Keshav, Nirmal, and Pankaj are partners sharing profits and losses in the ratio of 4:3:2. Nirmal decides to retire from the firm. On the date of his retirement, the firm's goodwill is valued at Rs. 72,000. It is important to note that goodwill does not currently appear in the firm's books. After Nirmal's retirement, Keshav and Pankaj decide to share future profits and losses in a new ratio of 5:3. As Nirmal is leaving, he must be compensated for his share of the goodwill that he helped build over the years. The continuing partners, Keshav and Pankaj, will provide this compensation based on the extent to which they have gained from Nirmal's retirement.

Deepa, Neeru, and Shilpa were partners sharing profits in the ratio of 5:3:2. Neeru decided to retire. On her retirement, the goodwill of the firm was valued at Rs. 1,20,000. Unusually, the new profit sharing ratio agreed between the continuing partners, Deepa and Shilpa, was 2:3. This new arrangement led to a situation where one of the continuing partners did not gain from Neeru's retirement, but actually sacrificed a portion of her own share. The accounting treatment for goodwill requires that any partner who gains must compensate not only the retiring partner but also any continuing partner who has sacrificed.