A, B, C are equal partners in a firm. C retired at the end of the year. Which of the following will not be received by the retiring partner?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Share in Employees’ Provident Fund
A retiring partner is entitled to a share of everything that belongs to the partners — the goodwill they built between them, the profits they left undistributed, and any gain thrown up when the assets and liabilities are revalued on his way out.
Employees’ Provident Fund is none of these. It is money the firm holds for its employees and must pay to them, so it is an outside liability, not a partners’ fund. It is carried forward by the continuing firm untouched, and no part of it is divided among the partners at any time — on retirement or otherwise.
What the retiring partner does receive
Option (1) Share in Goodwill — Received by the retiring partner. The goodwill was built up while he was a partner, and those who take over his share compensate him for it through their capital accounts.
Option (3) Share in Accumulated Profits — Received by the retiring partner. Reserves and undistributed profits were earned in his time, so they are divided among all the partners in the old ratio when he leaves.
Option (4) Share in Revaluation Profit — Received by the retiring partner. Assets and liabilities are revalued on his retirement so that the gain or loss up to that date is settled in the old ratio, his share included.