Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

In case of retirement or death of a partner, all accumulated profit a…

In case of retirement or death of a partner, all accumulated profit and losses are transferred in capital account of partners in the:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → old profit sharing ratio

Reserves and accumulated profits or losses were earned or suffered while all the partners, including the one retiring or deceased, shared in the old ratio. They belong to all of them, so they are written off to all the partners' capital accounts in the old profit sharing ratio.

Option (1) new profit sharing ratio — Incorrect. The new ratio excludes the outgoing partner, who is entitled to his share of the past profits.

Option (3) capital ratio — Incorrect. Profits are shared in the profit sharing ratio, not in the ratio of capitals.

Option (4) none of the above — Incorrect. Option (2) is the ratio used.

NCERT (2026-27 edition):
Adjustment of Accumulated Profits and Losses – “Sometimes, the Balance Sheet of a firm may show accumulated profits in the form of general reserve and/on accumulated losses in the form of profit and loss account debit balance. The retiring/deceased partner is entitled to his/her share in the accumulated profits and is also liable to share the accumulated losses, if any. These accumulated profits or losses belong to all the partners and should be transferred to the capital accounts of all partners in their old profit sharing ratio.”