Study Material & Notes for the Chapter 6
Partnership - Retirement of Partner
IV. ACCOUNTING TREATMENT OF RESERVES, ACCUMULATED PROFITS, REVALUATION
- On retirement of a partner, the partners scans Firm’s Financial position (Balance Sheet) i.e. Reserves, Accumulated Losses, Assets & Liabilities.
- As learnt in case of Admission of partner, this is done to ensure no partner(s) get(s) undue benefit due to previously earned/unearned profits or suffer loss due to previous earned/unearned losses.
- Free Reserves like General Reserve, P&L (Cr), these are distributed among partners in their existing profit-sharing ratio.
- Specific purpose reserves like (a) Workmen Compensation Reserve are compared with any workmen claim (b) Investment Fluctuation Reserve is compared with market value of Investments and any excess reserve is distributed to existing partners in their current PSR and any short reserve is taken to Revaluation A/c.
- Any Undistributed Losses or Fictitious Assets are written off and charged to the existing Partners in their current Profit Sharing Ratio.
- Partners reevaluate market value of Fixed Assets and remeasure Current Assets and Current Liabilities. Any change in the value of Assets/Liabilities is dealt via Revaluation Account and the resultant gain/loss is shared amongst the existing partners in their current profit-sharing ratio.