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Accounting · Partnership and LLP Accounts

Retirement and Death of a Partner: CA Foundation Accounting

Updated 1 October 2026 · Fact-checked

Retirement or death of a partner ends the old profit-sharing arrangement. You find the gaining ratio (new share minus old share), adjust goodwill and revaluation, add reserves and profit share, then compute the amount due. It is paid in cash, moved to a loan account, or, on death, to the executor's account.

Understand Retirement and Death of a Partner

When a partner retires or dies, the old firm's partnership ends and the remaining partners carry on with a new ratio. The outgoing partner must receive everything the firm owes him: his capital, his share of reserves and undistributed profits, his share of goodwill and his share of any asset gain. He must bear his share of losses.

The old ratio decides how past profits, reserves and revaluation are shared. The new ratio decides who pays for the retiring partner's goodwill. The partners whose share increases are the gaining partners. They compensate the retiring partner for the extra share they take. The measure of this gain is the gaining ratio.

Goodwill is the value of the firm's reputation. The retiring partner is entitled to his share of it. Normally the gaining partners pay for it through their capital accounts, in the gaining ratio. No cash needs to leave the firm for this. If the question says goodwill is raised in the books, you first credit all old partners in the old ratio, then write it off to the continuing partners in the new ratio.

Assets and liabilities are revalued at the date of retirement or death. The profit or loss goes to a Revaluation Account and is shared in the old ratio. Reserves and accumulated profits are also shared in the old ratio.

On death, the same steps apply. Some extra items come in: profit up to the date of death, drawings up to that date, and the joint life policy (JLP) claim. The amount due goes to the executor (legal representative) of the deceased partner, so you prepare the Executor's Account. It may be paid at once or in instalments with interest.

Key rules to remember

Gaining ratio
Gaining ratio = New ratio − Old ratio (for each continuing partner)
Calculate it as fractions with a common denominator. A positive result means gain. The total of the gains must equal the retiring partner's old share.
Goodwill adjustment
Retiring partner's goodwill share = Goodwill of firm × his old share
Entry: Gaining partners' Capital A/c Dr (in gaining ratio), To Retiring partner's Capital A/c. If the question says the new ratio is the same as the old ratio among continuing partners, the gaining ratio equals their old ratio.
Goodwill raised and written off
Raise: Goodwill Dr to old partners in old ratio. Write off: continuing partners' Capital A/c Dr in new ratio, To Goodwill
Use only when the question says goodwill is to be shown in the books.
Revaluation and reserves
Revaluation profit or loss and all reserves/accumulated profits are shared in the OLD ratio
Include the retiring partner in this sharing.
Amount due to retiring partner
Capital + Reserves share + Goodwill share + Revaluation profit share + Interest on capital − Drawings − Interest on drawings − Revaluation loss share
Add or subtract only items given in the question.
Profit up to date of death
Time basis: Last year's profit × months elapsed ÷ 12 × deceased partner's share. Sales basis: Last year's profit × (Sales to date of death ÷ Last year's sales) × share
Credit the deceased partner's capital and debit Profit and Loss Suspense A/c.
Joint life policy (premium charged to P&L)
On claim: Bank Dr, To JLP A/c. Then: JLP A/c Dr, To Partners' Capital A/cs (old ratio)
If the policy is shown as an asset at surrender value, transfer only the excess of claim over the book value to partners in old ratio.

How to solve Retirement and Death of a Partner questions

Use the same order for every retirement or death question. It keeps the entries complete and lets you check your answer at the end.

  1. 1Write the old ratio, the new ratio and the date of retirement or death. Calculate the gaining ratio and check that the gains add up to the retiring partner's share.
  2. 2Pass entries for reserves and accumulated profits. Credit them to all partners in the old ratio.
  3. 3Prepare the Revaluation Account for changes in assets and liabilities. Share the profit or loss in the old ratio and transfer it to the partners' capital accounts.
  4. 4Deal with goodwill. Either debit the gaining partners and credit the retiring partner in the gaining ratio, or raise and write off goodwill as the question directs.
  5. 5On death only: calculate profit to date of death, deduct drawings, and bring in the JLP claim. Credit the JLP money to partners in the old ratio.
  6. 6Prepare the Partners' Capital Accounts in columnar form. The balancing figure of the retiring or deceased partner is the amount due.
  7. 7Settle the amount. Pay cash, transfer the balance to a Loan or Executor's Account, or follow the instalment terms given. Add interest on the unpaid balance if stated.
  8. 8Check that total capitals of continuing partners plus the amount due equal total capital before the retirement plus net adjustments.

Quickest way: One capital account, five quick lines

When to use it: Use this when the question asks for the amount due to the retiring partner or for the continuing partners' capitals, and you have limited time.

  1. Draw the capital account columns first. Put the old ratio and the new ratio at the top of the page.
  2. Fill the credit side for each partner in order: opening capital, reserves, revaluation profit, goodwill.
  3. Fill the debit side: drawings, revaluation loss, goodwill borne by gaining partners.
  4. Write short working notes for the Revaluation Account and gaining ratio. Examiners award marks for working notes.
  5. Balance the accounts. Check that total of debits equals total of credits, and that the sum of final capitals equals old capitals plus net reserve and revaluation changes.

Common mistakes in Retirement and Death of a Partner

  • Sharing reserves and revaluation profit in the new ratio

    Students see that the firm continues with the new ratio and apply it everywhere.

    Fix: Past profits, reserves and revaluation always go in the OLD ratio. Use the new ratio only for charging goodwill, and in the gaining ratio.

  • Calculating the gaining ratio as new ratio ÷ old ratio, or using unequal denominators

    Students rush the fractions or confuse gaining with sacrificing ratio.

    Fix: Gaining ratio is new share minus old share. Convert to a common denominator first. Check that the gains total the retiring partner's old share.

  • Debiting the retiring partner for goodwill

    Students copy the admission treatment without thinking about who gains.

    Fix: The retiring partner is credited with his share of goodwill. Gaining partners are debited in the gaining ratio.

  • Forgetting the profit to date of death or drawings

    These items are given in the question's notes, and students skip the notes.

    Fix: Read all notes before starting. Credit the deceased partner with his profit share up to death and debit his drawings and interest on drawings.

  • Crediting the JLP claim to the deceased partner only

    Students think the money belongs only to the dead partner's estate.

    Fix: The policy was taken for the benefit of all partners. Credit the claim to all partners in the old ratio, including the deceased. Then the deceased's share is part of his account.

  • Showing the balance due as cash paid when part is transferred to a loan

    Students miss the settlement terms at the end of the question.

    Fix: Pay the cash portion through Bank A/c and transfer the remainder to the retiring partner's Loan A/c or the Executor's A/c.

Worked examples

Example 1

A, B and C share profits in the ratio 5:3:2. Their capitals are ₹3,00,000, ₹2,00,000 and ₹1,50,000. There is a General Reserve of ₹50,000. C retires. The firm's goodwill is valued at ₹2,00,000. Building is revalued upwards by ₹30,000 and stock is reduced by ₹10,000. A and B decide to share future profits in the ratio 3:2. C is paid ₹1,04,000 in cash and the rest is transferred to his loan account. Find the gaining ratio, C's amount due and the closing capitals of A and B.

Show the solution
  1. Gaining ratio: A's gain = 3/5 − 5/10 = 6/10 − 5/10 = 1/10. B's gain = 2/5 − 3/10 = 4/10 − 3/10 = 1/10. Gaining ratio = 1:1. Total gain 2/10 equals C's old share, so the check holds.
  2. Revaluation: gain of ₹30,000 less loss of ₹10,000 = profit ₹20,000. Shared 5:3:2: A ₹10,000, B ₹6,000, C ₹4,000.
  3. General Reserve ₹50,000 shared 5:3:2: A ₹25,000, B ₹15,000, C ₹10,000.
  4. Goodwill: C's share = 2/10 × ₹2,00,000 = ₹40,000. A and B bear it equally: ₹20,000 each. Debit A and B, credit C.
  5. C's amount due = ₹1,50,000 + ₹10,000 + ₹4,000 + ₹40,000 = ₹2,04,000.
  6. Cash paid ₹1,04,000. Transferred to C's Loan A/c = ₹2,04,000 − ₹1,04,000 = ₹1,00,000.
  7. A's capital = ₹3,00,000 + ₹25,000 + ₹10,000 − ₹20,000 = ₹3,15,000.
  8. B's capital = ₹2,00,000 + ₹15,000 + ₹6,000 − ₹20,000 = ₹2,01,000.
  9. Check: old capitals ₹6,50,000 + reserve ₹50,000 + revaluation ₹20,000 = ₹7,20,000. C ₹2,04,000 + A ₹3,15,000 + B ₹2,01,000 = ₹7,20,000.

Answer: Gaining ratio 1:1. Amount due to C ₹2,04,000 (₹1,04,000 paid in cash and ₹1,00,000 transferred to loan). Closing capital of A ₹3,15,000 and of B ₹2,01,000.

Example 2

A, B and C are equal partners. The accounts are closed on 31 March each year. C dies on 30 September 2024. His capital is ₹1,20,000. There is a General Reserve of ₹30,000 in the books. His drawings up to death are ₹12,000. Profit for the previous year was ₹1,80,000. Profit to date of death is to be calculated on a time basis. A joint life policy of ₹3,00,000 was in force, with premiums charged to Profit and Loss A/c, and the claim was received. Ignore goodwill and revaluation. Prepare the amount due to C's executor. ₹1,48,000 is paid at once and the rest is transferred to the Executor's Loan account.

Show the solution
  1. Time period: 1 April to 30 September 2024 = 6 months.
  2. General Reserve ₹30,000 shared equally: C's share = ₹10,000.
  3. Profit up to death = ₹1,80,000 × 6/12 = ₹90,000. C's share = 1/3 × ₹90,000 = ₹30,000. Entry: Profit and Loss Suspense A/c Dr ₹30,000, To C's Capital A/c.
  4. JLP: Bank A/c Dr ₹3,00,000, To JLP A/c ₹3,00,000. Then JLP A/c Dr ₹3,00,000, To A, B and C Capital A/cs ₹1,00,000 each (old ratio 1:1:1).
  5. C's account: Credits: capital ₹1,20,000 + reserve ₹10,000 + profit ₹30,000 + JLP ₹1,00,000 = ₹2,60,000.
  6. Debits: drawings ₹12,000.
  7. Amount due to executor = ₹2,60,000 − ₹12,000 = ₹2,48,000.
  8. Paid now ₹1,48,000. Balance ₹2,48,000 − ₹1,48,000 = ₹1,00,000, transferred to C's Executor's A/c (loan).

Answer: Amount due to C's executor is ₹2,48,000. ₹1,48,000 is paid by bank and ₹1,00,000 stays as Executor's Loan A/c.

Exam tips

  • Read every note in the question before starting. Items such as drawings, interest, JLP and time or sales basis are usually hidden in notes.
  • Always show working notes for the gaining ratio, revaluation and profit to date of death. Examiners award marks for them even if the final figure is wrong.
  • Use a columnar capital account for every partner and label the columns clearly. Keep the retiring or deceased partner's column on the left to reach the balancing figure quickly.
  • If the question does not say how goodwill is treated, check whether it is given in the books or to be adjusted. Do not assume.
  • State the settlement terms in the last line of your answer: cash paid, balance moved to loan or executor's account, and any interest.

Practice questions from Partnership and LLP Accounts

Retirement and Death of a Partner: frequently asked questions

How do I calculate the gaining ratio?

Subtract each continuing partner's old share from his new share, using a common denominator. The gaining ratio is the ratio of these differences. Their total must equal the retiring partner's old share.

Who pays for goodwill when a partner retires?

The gaining partners pay for it through their capital accounts, in the gaining ratio. The retiring partner's capital account is credited with his share of goodwill. No cash moves unless the question says so.

What is the accounting treatment of a joint life policy when a partner dies?

When the claim is received, debit Bank and credit the JLP account. If premiums were charged to profit and loss, the whole claim is then credited to all partners' capital accounts in the old ratio. If the policy was shown as an asset, only the excess over its book value is shared.

What is the Executor's Account and what does it show?

It is an account opened for the legal representative of the deceased partner. It shows the total amount due to him, the payments made and the balance still payable. Interest is added if the balance is paid in instalments.

Why are reserves shared in the old ratio and not the new ratio?

Reserves were built from profits earned when the old ratio applied. Every partner, including the one leaving, has a right to his share of those profits. The new ratio only applies to future profits.