Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

Reconstitution of partnership does not involves.....

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Dissolution of firm

Reconstitution of a partnership means any change in the existing agreement among the partners, after which a new agreement comes into force but the firm continues. Admission of a partner, retirement, death and a change in the profit sharing ratio are its usual forms. On dissolution of the firm the business itself is closed, so there is no firm left to reconstitute.

Option (1) Admission of partner — A mode of reconstitution. A new partner joins and the firm carries on with a new agreement.

Option (3) Death of partner — A mode of reconstitution. The remaining partners carry on the business under a changed agreement.

Option (4) Retirement of partner — A mode of reconstitution. The partner leaves and the others continue the firm.

NCERT (2026-27 edition):
Reconstitution of a Partnership Firm – “… Any change in the existing agreement amounts to reconstitution of the partnership firm. This results in an end of the existing agreement and a new agreement comes into being with a changed relationship among the members of the partnership firm and/or their composition. However, the firm continues. The partners often resort to reconstitution of the firm in various ways such as admission of a new partner, change in profit sharing ratio, retirement of a partner, death or insolvence of a partner.”

NCERT (2026-27 edition):
Dissolution of a Firm – “Dissolution of a partnership firm may take place without the intervention of court or by the order of a court, in any of the ways specified later in this section. It may be noted that dissolution of the firm necessarily brings in dissolution of the partnership. However, dissolution of partnership would not necessarily involve dissolution of firms.”