Accountancy Part AReconstitution of Partnership Firm: Retirement and Death

Arrange the following in the correct sequence related to adjustment o…

Arrange the following in the correct sequence related to adjustment of partners' capitals in case of retirement of a partner:

(A) Calculation of cash to be brought in or withdrawn by the continuing partners

(B) Calculation of total capital of new firm

(D) Calculation of new capitals of the existing partners

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → (C), (B), (D), (A)

When the continuing partners adjust their capitals to the new ratio, each step needs the one before it.

(C) Calculation of new profit sharing ratio — comes first, because the new capitals are fixed in that ratio.

(B) Calculation of total capital of new firm — follows; unless something else is agreed, it is the sum of the continuing partners’ adjusted capitals, and it is the amount to be divided.

(D) Calculation of new capitals of the existing partners — the total capital divided in the new ratio.

(A) Calculation of cash to be brought in or withdrawn by the continuing partners — comes last: it is the gap between each partner’s new capital and the capital he now has.

NCERT (2026-27 edition):
Adjustment of Partners’ Capitals – “At the time of retirement or death of a partner, the remaining partners may decide to adjust their capital contributions in their profit sharing ratio. In such a situation, the sum of balances in the capitals of continuing partners may be treated as the total capital of the new firm, unless specified otherwise. Then, to ascertain the new capital of the continuing partners, the total capital of the firm is divided amongst the remaining partners as per the new profit sharing ratio, and the excess or deficiency of capital in the individual capital account’s may be worked out.”