NCERT Class 12 Accountancy Accountancy-I: Chapter 3 — Reconstitution of a Partnership Firm
This chapter, 'Ascertaining the Amount Due to Retiring/ Deceased Partner,' from NCERT Class 12 Accountancy-I, details the reconstitution of a partnership firm upon a partner's retirement or death. It explains that the existing partnership deed ends, requiring a new one with changed terms for continuing partners. The accounting treatment for retirement and death is similar, focusing on determining the sum due to the retiring partner or the deceased partner's legal representatives. Key adjustments include goodwill, asset/liability revaluation, and accumulated profits/losses. The chapter outlines the calculation of the new profit-sharing ratio and gaining ratio among remaining partners. It also lists components that add to or deduct from the retiring/deceased partner's claim, such as capital balances, goodwill, profits, losses, drawings, and interest. The learning objectives cover calculating new ratios, accounting for goodwill, handling unrecorded items, adjusting profits/losses, ascertaining and settling claims, and preparing relevant accounts and the balance sheet.
Quick info
| Board | CBSE / NCERT |
|---|---|
| Class | Class 12 |
| Subject | Accountancy |
| Book | Accountancy-I |
| Chapter | Chapter 3 — Reconstitution of a Partnership Firm |
| Language | English |
| PDF type | NCERT Textbook |
| Session | CBSE 2026 |
| Reading time | 4 minutes |
| Word count | 796 |
Learning outcomes
- Calculate the new profit sharing ratio and gaining ratio of remaining partners after retirement/death.
- Describe the accounting treatment of goodwill.
- Make necessary entries for unrecorded assets and liabilities.
- Adjust for accumulated profits or losses.
- Ascertain the retiring/deceased partner's claim and its settlement.
- Prepare the retiring partner's loan account or deceased partner's executor's account.
Vocabulary
| Word | Meaning |
|---|---|
| Reconstitution | The process of changing the existing agreement of partnership. |
| Retiring Partner | A partner who leaves the partnership firm. |
| Deceased Partner | A partner who dies during the term of the partnership. |
| Partnership Deed | The legal document outlining the terms of partnership. |
| Accumulated Profits | Profits earned by the firm but not distributed to partners. |
| Revaluation | The process of reassessing the value of assets and liabilities. |
| Goodwill | The reputation of a firm that brings in profits. |
| Gaining Ratio | The ratio in which continuing partners acquire the share of a retiring/deceased partner. |
| Executor | A person appointed to carry out the terms of a will for a deceased person. |
| Capital Account | An account showing a partner's investment in the firm. |
| Current Account | An account used to record partners' drawings, salaries, interest, etc., when capital is fixed. |
| Drawings | Withdrawals made by a partner from the firm for personal use. |
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Practice questions
- What happens to the existing partnership deed when a partner retires or dies? Answer: The existing partnership deed comes to an end.
- What are the two main events that lead to the reconstitution of a partnership firm discussed in this chapter? Answer: Retirement or death of a partner.
- Besides goodwill and revaluation, what other adjustments are necessary when a partner retires or dies? Answer: Adjustments in respect of accumulated profits and losses, and share of profits/losses up to the date of retirement/death.
- What is the 'gaining ratio'? Answer: The ratio in which the continuing partners acquire the share of the retiring or deceased partner.
- List two items that may be deducted from a retiring partner's claim. Answer: Share of accumulated losses, drawings, interest on drawings, share of loss on revaluation.
Practice MCQs
Q1. Which of the following events leads to the reconstitution of a partnership firm?
Explanation: Admission, retirement, and death of a partner all result in a change in the partnership agreement, leading to reconstitution.
Q2. The new profit sharing ratio is relevant for:
Explanation: The new profit sharing ratio determines how the continuing partners will share future profits after one partner has left.
Q3. In the absence of any information, in what ratio are the continuing partners assumed to acquire the share of the retiring partner?
Explanation: It is assumed that continuing partners acquire the retiring partner's share in their old profit sharing ratio unless stated otherwise.
Q4. Which of the following is NOT typically included in the sum due to a retiring partner?
Explanation: The retiring partner is entitled to their share of profits up to the date of retirement, but not future profits of the reconstituted firm.
Q5. The process of reassessing the value of assets and liabilities at the time of retirement/death is called:
Explanation: Revaluation of assets and liabilities is a standard adjustment made to reflect their current market values.
Frequently asked questions
What is the main difference in accounting treatment between retirement and death of a partner?
The accounting treatment is largely similar, but the sum due is paid to the retiring partner directly, while to the deceased partner's legal representatives/executors.
When does a partnership deed come to an end?
A partnership deed comes to an end upon the retirement or death of a partner, necessitating a new deed.
What is the purpose of calculating the new profit sharing ratio?
The new profit sharing ratio is calculated to determine how the remaining partners will share future profits after a partner's exit.
What is the gaining ratio used for?
The gaining ratio is used to adjust the capital accounts of continuing partners when goodwill is treated through partner's capital accounts.
What does the 'sum due to the retiring/deceased partner' include?
It includes their capital balance, share of goodwill, accumulated profits, gains on revaluation, profits up to retirement/death, and any due salary/interest, minus losses, drawings, and interest on drawings.
How are accumulated profits and losses adjusted?
Accumulated profits (reserves) are credited to all partners' capital accounts in their old profit-sharing ratio, and accumulated losses are debited.
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NCERT Class 12 Accountancy — Accountancy-I — Chapter 3 — Reconstitution of a Partnership Firm. Verified by NCERT Help Editorial Team. Reviewed on 29 Jul 2026. Last updated 10 Aug 2026.