Financial Accounting II - Reconstitution of Partnership Firms-II

Flashcards covering key vocabulary related to the reconstitution of partnership firms, focusing on retirement, adjustments, and accounting treatments.

Retirement of a Partner

When one or more partners leave the firm, and the remaining partners continue the business.

Retiring Partner/Outgoing Partner

A partner who leaves the firm during retirement.

Gaining Ratio

The ratio in which the remaining partners acquire the retiring partner's share.

Gain of a Partner

New Ratio - Existing Ratio

Expulsion of a Partner

exclusion of partner from the firm mutually by consent of the partners

Expulsion of a Partner

The exclusion of a partner from a firm, requiring consent and good faith.

Revaluation of Assets and Liabilities

Adjustments made to reflect fair values, with gains/losses shared by all partners.

Treatment of Accumulated Reserves and Undistributed Profit

Distributed among all partners in their old profit-sharing ratio.

Retiring Partner’s Claim

The sum of the credit balance of capital account including share of goodwill, share within the Gain/Profit on Revaluation their share in General Reserve and Accumulated Profit and, Interest on Capital less share within the Loss on Revaluation, Drawings and Interest on Drawings up to the date of retirement, share of any accumulated losses and loan taken from the firm.

Partnership Deed

An agreement between the partners of a firm that outlines the terms and conditions of partnership.

Revaluation

Revaluation of assets and liabilities in partnership is done at the time of change in the profit-sharing ratio among the partners. Assets and liabilities are revalued because of the difference between the actual value and the market value of assets and liabilities.

Goodwill

Goodwill refers to the difference between the fair or market value of the net assets of the partnership and their book value