The correct answer is Option (4) - (A)-(III), (B)-(I), (C)-(II), (D)-(IV).
* Retirement- Gaining Ratio to continued partner.
When a partner retires from a partnership, the gaining ratio is used to determine the new profit-sharing ratio among the remaining partners. The gaining ratio is calculated by deducting old ratio from new ratio. The retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm with the efforts of all the existing partners. Hence, at the time of retirement/death of a partner, goodwill is valued as per agreement among the partners the retiring/ deceased partner compensated for his share of goodwill by continuing partners (who have gained due to the acquisition of a share of profit from the retiring/ deceased partner) in their gaining ratio.
* Admission- Sacrifice made by old partners.
When a new partner is admitted to the partnership, the existing partners may need to make a sacrifice in their profit-sharing ratios to accommodate the new partner. The sacrifice ratio is the ratio in which existing partners agree to reduce their shares in favor of the new partner. It is calculated by deducting new new ratio from old ratio. When the new Partner brings goodwill in cash. The amount of premium brought in by the new partner is shared by the existing partners in their ratio of sacrifice. If this amount is paid to the old partners directly (privately) by the new partner, no entry is passed in the books of the firm.
* Absence of Partnership Deed- Equal Profit Sharing.
In the absence of a partnership deed, which is a written agreement outlining the terms and conditions of the partnership, the provisions of the Indian Partnership Act, 1932, may apply. By default, in the absence of a specific agreement, profits and losses are typically shared equally among the partners.
Some of the provisions applied in absence of partnership deed are:
a) Profit Sharing Ratio: In the absence of a specified profit sharing ratio in the partnership deed, the profits and losses of the firm will be divided equally among the partners, regardless of their individual capital contributions.
b) Interest on Capital: Unless explicitly stated in the partnership agreement, partners do not have the right to claim interest on the capital they have invested in the firm.
c) Interest on Drawings: If the partnership deed does not mention anything about charging interest on drawings made by partners, no interest will be levied on such withdrawals.
d) Interest on Loan: If a partner has provided a loan to the partnership for business purposes, they are entitled to receive interest on the loan amount at a rate of 6 percent per annum.
e) Remuneration for Firm’s Work: No partner is entitled to get salary or other remuneration for taking part in the conduct of the business of the firm unless there is a provision for the same in the Partnership Deed.
* Dissolution of Partnership firm- Settlement of Accounts.
When a partnership is dissolved, the partners need to settle their accounts. This involves the realization of assets, payment of liabilities, and distribution of the remaining assets among the partners. The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:
(i) In paying the debts of the firm to the third parties.
(ii) In paying each partner proportionately what is due to him/her from the firm for advances as distinguished from capital (i.e. partner’ loan).
(iii) In paying to each partner proportionately what is due to him on account of capital.
(iv) the residue, if any, shall be divided among the partners in their profit sharing ratio. |
