Financial Accounting II - Reconstitution of Partnership Firms-III (Death of a Partner)

Flashcards on Reconstitution of Partnership Firms - Death of a Partner

Reconstitution of Partnership

Occurs when a partner dies, leading to adjustments such as distribution of accumulated profits, revaluation of assets/liabilities, and determination of new profit-sharing ratios.

Adjustments on Death of a Partner

Include distribution of accumulated profits/losses, revaluation of assets/liabilities, determining new profit-sharing ratio, goodwill adjustment, current year's profit/loss adjustment, and settling the amount due to the deceased partner.

Legal Representatives

Entitled to the deceased partner's capital account balance, interest on capital, share of goodwill, profit/reserve share, profit share from revaluation, profit shares up to death date, and Joint Life Insurance Policy participation.

Time Basis (Profit Calculation)

Assumes profit is earned consistently throughout the year; profit for the period until death is calculated proportionally based on the previous year's profit.

Turnover or Sales Basis (Profit Calculation)

Calculates profit up to the date of death based on the previous year's earnings and total sales, assuming profit is earned at the same rate.

Expulsion of a Partner

Refers to exclusion of partner from the firm mutually by consent of the partners due to reasons of welfare of the firm, poor conduct of the partner etc.

Outgoing Partner

A partner who ceases to be associated with the firm due to retirement, death, or expulsion.

Section 32

Of the Indian Partnership Act deals with the retirement of a partner. It states that a partner may retire if the following conditions are met: With the permission of all other partners; With the partners' express permission; If it's a willful partnership, then by notifying all of the other partners that you're retiring.

Section 33

Of the Indian Partnership Act governs the removal/expulsion of a partner, requiring it to be in the partnership's best interests, with notice given, and a chance for the partner to be heard.

Section 37

Of the Indian Partnership Act deals with an outgoing partner's entitlement to share future profits in certain circumstances.

Amalgamation of Partnership Firms

The merger or combination of two or more business units carrying on the same type of business to form a new business unit. Also known as a new partnership.

Objectives of Amalgamation

To eliminate competition, reduce expenses, increase capital position, and leverage diverse expertise.

Realization Method

A method used to calculate the purchase price of an organization, where all assets and all liabilities are transferred to Realization A/c at book value.

Revaluation

A change in the value of an asset or stock, recorded in a Revaluation or Profit & Loss Adjustment A/c during the revaluation method.

Insolvency

A situation where a debtor cannot pay their debts.