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Reconstitution — Retirement / Death of a Partner for Class 12: The Complete CBSE Guide (2026-27)

When a partner retires from a firm or passes away, the partnership does not dissolve — instead it reconstitutes. Reconstitution — Retirement / Death of a Partner Class 12 teaches you the precise accounting treatment under the Partnership Act and NCERT guidelines: how to calculate what the firm owes the outgoing partner (or their legal heirs), which continuing partners gain from the vacancy, and how to rebalance capital accounts so the new profit-sharing ratio reflects economic reality. This chapter builds on your knowledge of admission of a partner but reverses the flow — instead of bringing in capital, the firm pays out settlements. Every CBSE board paper since 2015 has carried at least one 6-mark numerical on retirement or death, often combined with revaluation and goodwill adjustments.

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Key takeaways

  • ✓Reconstitution — Retirement / Death of a Partner Class 12 carries 12–16 marks in the CBSE board exam, making it critical for scoring above 90% in Accountancy.
  • ✓Gaining ratio (not old ratio) governs how continuing partners compensate the retiring or deceased partner for goodwill and absorb the outgoing partner's profit share.
  • ✓The amount due to a retiring partner includes capital balance after revaluation, share of reserves and goodwill, less any drawings — paid in cash or transferred to a loan account.
  • ✓Executor's account is opened in the books for a deceased partner; it functions like the retiring partner's capital account and is settled per the partnership deed or legal heirs' agreement.
  • ✓Adjustment of capital among continuing partners uses the gaining ratio when the deed specifies a new capital structure post-retirement or death.
  • ✓Hidden goodwill (when firm goodwill is not recorded separately) is calculated by capitalising super-profits or using the agreed lump-sum method from NCERT.
  • ✓CBSE expects clear journal entries, ledger postings and final balance-sheet extracts; partial marks are lost if narrations or dates are missing.

What Is Reconstitution — Retirement / Death of a Partner in Class 12 Accountancy?

Reconstitution — Retirement / Death of a Partner Class 12 refers to the change in the partnership composition when one or more existing partners exit the firm either voluntarily (retirement) or due to demise (death). Under Section 32 of the Indian Partnership Act 1932, retirement occurs with consent of all partners or as per the partnership deed; death reconstitutes the firm automatically. The NCERT textbook for Class 12 Accountancy Part I devotes an entire chapter to this topic, covering three core accounting tasks: (i) valuation and distribution of the retiring or deceased partner's interest, (ii) adjustment of goodwill using the gaining ratio, and (iii) rebalancing of continuing partners' capital accounts. Unlike dissolution, the business continues; only the profit-sharing ratio and capital structure change. CBSE marks schemes award 2 marks for correctly identifying the event type, 4 marks for revaluation and goodwill entries, and up to 6 marks for full settlement including executor's account preparation.
  • Retirement: partner exits voluntarily; requires mutual consent or deed clause.
  • Death: automatic reconstitution; legal heirs become entitled to the deceased partner's share.
  • Firm continues to operate; remaining partners absorb the outgoing partner's profit share in their gaining ratio.
  • All adjustments (revaluation, goodwill, reserves) must be recorded before computing the final amount due.

Gaining Ratio: The Foundation of Reconstitution Accounting

The gaining ratio is the ratio in which continuing partners acquire the share of profit previously held by the retiring or deceased partner. It is calculated as New share minus Old share for each continuing partner. This ratio is fundamentally different from the old profit-sharing ratio and the sacrificing ratio (used during admission). NCERT Class 12 emphasises that goodwill compensation and any premium paid flow through the gaining ratio. For example, if partners A, B and C share profits 3:2:1, and C retires, A and B might take C's 1/6 share equally (each gaining 1/12), making the gaining ratio A:B = 1:1 in this instance — even though their old ratio was 3:2. The formula is: Gaining Ratio = New Ratio − Old Ratio. CBSE numericals often require students to compute gaining ratio first, then use it to debit continuing partners' capital accounts for goodwill.
  • Gaining Ratio = (New profit share of continuing partner) − (Old profit share of continuing partner).
  • Used to distribute the cost of goodwill paid to the outgoing partner.
  • Also used for adjusting capital accounts when the deed mandates proportional capital.
  • Common mistake: using old ratio instead of gaining ratio for goodwill adjustment — costs 2 marks in CBSE.

Amount Payable to a Retiring Partner: Components and Calculation

The total amount due to a retiring partner comprises several elements, each requiring a separate journal entry in NCERT methodology. Start with the retiring partner's capital account balance. Add: (i) share of revaluation profit (if assets appreciate or liabilities decrease), (ii) share of accumulated reserves and profits not yet distributed, (iii) share of goodwill (either by raising goodwill account or direct debit to continuing partners in gaining ratio), and (iv) any interest on capital up to the date of retirement. Subtract: (i) share of revaluation loss, (ii) drawings and interest on drawings, (iii) any outstanding loan the partner owes the firm. The final figure is either paid in cash (Cr. Bank) or transferred to the Retiring Partner's Loan Account if the firm lacks immediate liquidity. CBSE marking schemes allocate 1 mark for each correctly posted component; omitting revaluation or reserve distribution loses marks even if the final figure is correct.
  • Credit retiring partner's capital for share of goodwill, revaluation gain, reserves.
  • Debit the same account for revaluation loss, drawings, interest on drawings.
  • If settled in cash: debit Retiring Partner's Capital, credit Bank.
  • If settled over time: debit Retiring Partner's Capital, credit Retiring Partner's Loan.
  • Interest on loan (if applicable) is charged as per deed and debited to Profit & Loss Appropriation.

Death of a Partner: Opening the Executor's Account

When a partner dies, their capital account is closed and the Executor's Account (or Legal Heir's Account) is opened to record what the firm owes the deceased partner's estate. The accounting treatment for death of a partner mirrors retirement with two key differences: (i) profits up to the date of death must be time-apportioned (e.g. if death occurs on 30 September and the year-end is 31 March, the deceased partner gets 6/12 of the annual profit), and (ii) any salary, interest on capital or drawings for the partial period must be calculated. NCERT prescribes either time-basis or turnover-basis for profit calculation; CBSE papers usually specify which method to use. The executor's account is credited with the deceased partner's share of revaluation gain, reserves, goodwill and time-apportioned profit, then debited for drawings and any advances. Final balance is paid to the executor in cash or installments as agreed.
  • Close Deceased Partner's Capital A/c; open Executor's A/c on the credit side.
  • Credit executor for share of goodwill, revaluation profit, reserves, salary and interest on capital (pro-rata).
  • Debit executor for drawings, interest on drawings, any loans taken.
  • Time-apportionment formula: (Profit for the year × months until death) / 12.
  • Settlement: Dr Executor's A/c, Cr Bank / Executor's Loan A/c.

Adjustment of Capital Among Continuing Partners

After a partner retires or dies, the partnership deed may require continuing partners to adjust their capital accounts to match the new profit-sharing ratio. NCERT Class 12 specifies two methods: (i) when total capital is given, each partner's new capital = Total Capital × New Ratio; surplus is withdrawn, deficit is brought in, or (ii) when one partner's capital is the base, others adjust proportionately. The adjustment entries use the gaining ratio to ensure fairness. For example, if A and B continue in 3:2 and total capital should be ₹5,00,000, A must have ₹3,00,000 and B ₹2,00,000. If A's current balance is ₹2,80,000, A brings in ₹20,000 cash; if B's balance is ₹2,30,000, B withdraws ₹30,000. CBSE awards 2 marks for the adjustment working and 2 marks for journal entries. Forgetting to adjust or using old ratio instead of new ratio is a common error.
  • New Capital = Total Capital × New Profit Ratio (method 1).
  • Or base one partner's capital and adjust others (method 2).
  • Surplus: Dr Partner's Capital, Cr Bank (withdrawal).
  • Deficit: Dr Bank, Cr Partner's Capital (bring in cash).
  • If capitals are to remain proportionate in gaining ratio, use gaining ratio for adjustment.

Goodwill Adjustment in Retirement and Death Scenarios

Goodwill represents the firm's reputation and earning capacity. When a partner retires or dies, continuing partners compensate them for their share of goodwill because the outgoing partner helped build that intangible value. NCERT prescribes three approaches: (i) if goodwill is already recorded, no new entry — just transfer retiring partner's share from continuing partners in gaining ratio; (ii) if goodwill is unrecorded but valued, debit continuing partners' capital in gaining ratio and credit retiring partner's capital; (iii) if goodwill is raised temporarily and then written off (hidden goodwill method). CBSE prefers method (ii). For instance, if firm goodwill is ₹60,000, retiring partner's share is 1/3 (₹20,000), and continuing partners A and B gain equally, then A's Capital Dr ₹10,000, B's Capital Dr ₹10,000, Retiring Partner's Capital Cr ₹20,000. Premium or lump-sum goodwill paid privately by one continuing partner does not appear in books unless specifically mentioned.
  • Retiring partner's goodwill share = Total Goodwill × Retiring Partner's Old Ratio.
  • Debit continuing partners in their gaining ratio, credit retiring partner.
  • Hidden goodwill: raise Goodwill A/c, then immediately write it off in new ratio if deed says so.
  • Private arrangement goodwill: adjust personal capital outside books; record only if cash changes hands through firm.

Revaluation Account and Its Impact on Reconstitution

Before computing the retiring or deceased partner's dues, the firm must revalue assets and liabilities to reflect current market values. Any profit or loss on revaluation is shared by all partners (including the outgoing one) in the old profit-sharing ratio. The Revaluation Account (also called Profit & Loss Adjustment Account) is debited for decreases in asset value or increases in liabilities, and credited for increases in assets or decreases in liabilities. The balance is transferred to all partners' capital accounts in the old ratio. This ensures the outgoing partner receives a fair settlement based on today's asset values, not historical cost. CBSE numericals often combine revaluation with retirement in a single 6-mark question; students must prepare the Revaluation A/c, then post each partner's share to their capital account before calculating the final payout.
  • Debit Revaluation A/c for asset write-downs (e.g. machinery depreciation, bad debts).
  • Credit Revaluation A/c for asset appreciation (e.g. land, building revaluation upward) or liability reduction (e.g. provision no longer needed).
  • Balance transferred to all partners' capital in old ratio.
  • Common items: stock revaluation, provision for doubtful debts, unrecorded assets/liabilities.

Treatment of Reserves and Accumulated Profits

Reserves, general reserve, profit & loss account credit balance and any other undistributed profits must be distributed among all partners in the old ratio before settlement. The journal entry is: Dr General Reserve / P&L A/c, Cr All Partners' Capital A/c (old ratio). This step is crucial because the retiring or deceased partner contributed to building those reserves during their tenure. If reserves are not distributed, the continuing partners effectively gain an unfair windfall. NCERT highlights this in every solved example of Reconstitution — Retirement / Death of a Partner Class 12. CBSE marking schemes deduct 1 mark if reserve distribution is missing. Similarly, any accumulated loss (debit balance in P&L) must be debited to all partners' capital in the old ratio before calculating the retiring partner's final dues.
  • Dr Reserve A/c / P&L A/c (Cr balance); Cr All Partners' Capital in old ratio.
  • Dr All Partners' Capital in old ratio; Cr P&L A/c (Dr balance) for accumulated losses.
  • Includes general reserve, reserve fund, workmen compensation fund (if no longer needed), investment fluctuation reserve.
  • Do this before calculating goodwill or revaluation adjustments.

Settlement Options: Cash Payment vs Loan Account

Once the retiring or deceased partner's total dues are ascertained, the firm can settle in three ways mandated by the partnership deed or mutual agreement: (i) immediate cash payment (Dr Retiring Partner's Capital / Executor's A/c, Cr Bank), (ii) transfer to a loan account repayable over time with interest (Dr Retiring Partner's Capital, Cr Retiring Partner's Loan A/c; interest debited to P&L Appropriation annually), or (iii) part cash, part loan. NCERT examples show all three. In CBSE board exams, if the question states 'half paid immediately and balance in two equal annual installments', students must show the cash entry for half, create a loan account for the remainder, and calculate interest as specified. Missing the interest calculation loses 1 mark. The loan appears as a long-term liability on the balance sheet; it is not a partner's capital.
  • Full cash settlement: single journal entry, Dr Capital/Executor A/c, Cr Bank.
  • Loan settlement: Dr Capital/Executor A/c, Cr Loan A/c; then record installments and interest.
  • Interest on loan: Dr P&L Appropriation A/c, Cr Retiring Partner's Loan A/c.
  • Installment payment: each cash payout is Dr Loan A/c, Cr Bank.

Reconstitution — Retirement / Death of a Partner Class 12 Notes: Journal Entries Sequence

NCERT lays out a standard sequence of journal entries that CBSE examiners expect in every numerical. Mastering this sequence is key to scoring full marks. (1) Transfer reserves and accumulated profits to all partners' capital in old ratio. (2) Record revaluation adjustments (assets up/down, liabilities), then transfer Revaluation A/c balance to all partners in old ratio. (3) Adjust goodwill: if raising goodwill account, Dr Goodwill, Cr All Partners (old ratio); if paying retiring partner's share only, Dr Continuing Partners (gaining ratio), Cr Retiring Partner. (4) Close retiring partner's capital or open executor's account. (5) Record settlement (cash/loan). (6) If capital adjustment is required, bring in or withdraw cash to match new ratios. Following this order prevents errors and ensures ledger accounts balance. CBSE model answers always show this sequence; deviating costs presentation marks.
  • Step 1: Distribute reserves (Dr Reserve, Cr Partners — old ratio).
  • Step 2: Revaluation (Dr/Cr assets/liabilities, then transfer balance to partners — old ratio).
  • Step 3: Goodwill adjustment (Dr continuing partners — gaining ratio, Cr retiring partner).
  • Step 4: Close/transfer retiring/deceased partner's account (Dr Capital, Cr Executor/Loan/Bank).
  • Step 5: Adjust continuing partners' capital if required (Dr/Cr Capital, Dr/Cr Bank).

Common Mistakes in Reconstitution — Retirement / Death of a Partner Class 12 Numericals

Students lose 30–40% of marks on avoidable errors. First, using old ratio instead of gaining ratio for goodwill adjustment — this is wrong because only continuing partners benefit from the outgoing partner's exit. Second, forgetting to distribute reserves before revaluation; NCERT order is reserves first, then revaluation, then goodwill. Third, omitting the deceased partner's time-apportioned profit when death occurs mid-year; CBSE specifically tests this. Fourth, not preparing the executor's account separately — simply crediting deceased partner's capital is incomplete. Fifth, miscalculating gaining ratio: always compute new share minus old share for each continuing partner individually. Sixth, neglecting interest on retiring partner's loan in subsequent years. Seventh, not adjusting capital accounts when the question states 'capitals to be proportionate to new ratio'. Eighth, poor presentation: no dates, missing narrations, illegible ledger formats. Practising 15–20 NCERT and past-year problems eliminates these mistakes.
  • Error: Goodwill shared in old ratio instead of gaining ratio — penalty: 2 marks.
  • Error: Skipping reserve distribution — penalty: 1 mark.
  • Error: Full-year profit to deceased partner instead of time-apportioned — penalty: 2 marks.
  • Error: Not opening executor's account for death case — penalty: 1–2 marks.
  • Error: Wrong gaining ratio calculation — penalty: entire goodwill entry marked wrong.
  • Error: Forgetting interest on loan — penalty: 1 mark per year.
  • Error: Capital adjustment not recorded when question asks for it — penalty: 2 marks.

CBSE Class 12 Accountancy Reconstitution — Retirement / Death of a Partner Exam Pattern and Weightage (2024-25)

In the 2024-25 CBSE Class 12 Accountancy Term II or annual exam (80 marks total for theory), Partnership Accounts carries approximately 20 marks, of which Reconstitution — Retirement / Death of a Partner Class 12 typically accounts for 12–14 marks across Part A (short answer, 3–4 marks) and Part B (long answer, 6–8 marks). Expect one numerical problem (6 marks) asking for complete journal entries, capital accounts and balance sheet extract, plus one short question (3 marks) on gaining ratio calculation or executor's account. CBSE's competency-based marking scheme awards 2 marks for conceptual understanding (correct identification of gaining ratio, revaluation items), 3 marks for accurate computation, and 1 mark for presentation (dates, narrations, format). Internal assessments and pre-boards often include case-based questions where a scenario describes a retirement or death event and students must choose correct accounting treatments from MCQs. Sample papers from 2023 and 2024 show increasing emphasis on adjustments when partnership deed is silent — students must apply default rules from the Partnership Act.

How CBSETUTOR.ai Helps Master Reconstitution — Retirement / Death of a Partner Class 12

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  • Upload photo of any Reconstitution — Retirement / Death of a Partner question; get instant step-by-step solution.
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Important Formulas for Reconstitution — Retirement / Death of a Partner Class 12

CBSE numericals test formula application under time pressure. Memorise these and write them in your answer for method marks. (1) Gaining Ratio = New Ratio − Old Ratio (for each continuing partner). (2) Retiring Partner's Share of Goodwill = Total Goodwill × Retiring Partner's Old Profit Share. (3) Amount Payable to Retiring Partner = Adjusted Capital + Share of Reserves + Share of Goodwill + Share of Revaluation Profit − Drawings − Share of Revaluation Loss. (4) Time-Apportioned Profit (for deceased partner) = (Annual Profit × Number of Months until Death) / 12 × Deceased Partner's Share. (5) New Capital of Continuing Partner = Total Agreed Capital × New Profit Ratio. (6) Interest on Retiring Partner's Loan = Loan Amount × Rate × Time (simple interest, unless stated compound). Write these formulas in your rough work; examiners award partial credit if the setup is correct even if calculation has minor errors.
  • Gaining Ratio = New Share − Old Share (each continuing partner separately).
  • Goodwill to Retiring Partner = Firm Goodwill × Retiring Partner's Old Ratio.
  • Settlement Amount = Capital (after all adjustments) + Reserves + Goodwill + Revaluation Profit − Drawings − Losses.
  • Profit till Death = (Last Year Profit × Months / 12) × Deceased Share, OR (Sales till Death / Total Sales) × Profit × Deceased Share.
  • Adjusted Capital = Total Capital × New Ratio (when capital adjustment clause exists).

Frequently asked questions

Why is gaining ratio used for goodwill and not the old profit-sharing ratio in Reconstitution — Retirement / Death of a Partner Class 12?+
Gaining ratio measures how much each continuing partner actually benefits from the retiring partner's exit. The old ratio reflected past profit shares; the gaining ratio shows the increase in future profit shares. Since continuing partners gain additional profit share, they compensate the retiring partner for goodwill in proportion to their respective gains. Using old ratio would unfairly allocate goodwill cost and contradict the economic reality of who benefits. NCERT explicitly defines gaining ratio for this purpose and CBSE deducts marks if old ratio is used.
How do I calculate the amount payable to a retiring partner step-by-step for CBSE board exam?+
Start with the retiring partner's capital balance. Add: (i) share of accumulated reserves (debit Reserve, credit all partners in old ratio), (ii) share of revaluation profit (from Revaluation Account), (iii) share of goodwill (credit retiring partner, debit continuing partners in gaining ratio). Subtract: (i) share of revaluation loss, (ii) drawings, (iii) interest on drawings. The final balance is the amount payable. Then decide settlement mode: full cash (debit Capital, credit Bank) or loan (debit Capital, credit Loan Account). Show every step in journal entries and ledger postings for full marks.
What is the executor's account and when must I prepare it in Class 12 Accountancy?+
Executor's account (or Legal Representative's Account) is opened when a partner dies. It replaces the deceased partner's capital account and records all amounts due to the deceased partner's legal heirs. Credit it with the deceased partner's capital balance, share of revaluation profit, reserves, goodwill, time-apportioned profit and interest on capital. Debit it for drawings and any liabilities. The balance represents what the firm owes the executor. Settlement can be cash or installment loan. CBSE awards 4–6 marks for a complete executor's account in board exams; omitting it when the question mentions death loses significant marks.
How is profit calculated up to the date of death when a partner dies mid-year?+
NCERT prescribes two methods: (i) Time basis — assume profit is earned uniformly over 12 months. Formula: (Last year's profit × months from year-start to death / 12) × deceased partner's share. (ii) Turnover basis — if sales data is available, (Sales till death / Total annual sales) × Last year's profit × deceased partner's share. The question will specify which method to use. Always show the calculation separately in your answer. CBSE awards 2 marks for correct time-apportioned profit; using full-year profit is a common error that loses those marks.
Do I need to adjust continuing partners' capital accounts after retirement or death?+
Only if the partnership deed or question explicitly requires it. Common scenarios: (i) 'Capitals of continuing partners should be in their new profit-sharing ratio', (ii) 'Total capital of the new firm is fixed at ₹X', or (iii) 'A's capital is fixed; B's capital to be adjusted accordingly'. If such a clause exists, compute each partner's required capital (Total × New Ratio or based on one partner as reference), compare with actual balance after all adjustments, and bring in cash (if deficit) or withdraw cash (if surplus). Record journal entries for these adjustments. If the question is silent, no capital adjustment is needed — just show the balances after settlement.
Can a retiring partner's dues be settled partly in cash and partly as a loan?+
Yes, this is very common in CBSE numericals. The question will state something like 'Half the amount paid immediately; balance transferred to loan account payable in two annual installments at 8% interest'. Journal entry: Retiring Partner's Capital Dr (total due) To Bank (cash portion), To Retiring Partner's Loan (loan portion). Each year, debit P&L Appropriation for interest (Loan × Rate), credit Loan Account. On installment payment, debit Loan Account, credit Bank. CBSE awards 1 mark for each correct entry; missing interest loses marks. Always create a separate Loan Account in the ledger.
What is hidden goodwill and how do I account for it in Reconstitution — Retirement / Death of a Partner Class 12?+
Hidden goodwill arises when the firm's goodwill is not recorded on the books but is implicitly valued (e.g. 'the firm is valued at ₹5,00,000 and net assets are ₹4,00,000, so goodwill is ₹1,00,000'). Two treatments per NCERT: (i) Raise Goodwill Account (Dr Goodwill ₹1,00,000, Cr All Partners in old ratio), distribute it, then write it off (Dr All Partners in new ratio, Cr Goodwill). (ii) Do not raise Goodwill Account; directly debit continuing partners in gaining ratio and credit retiring partner for their share. CBSE prefers method (ii) unless the question says 'goodwill account is to be raised'. State your method clearly in the answer.
Why must reserves and profits be distributed in the old ratio before computing retirement dues?+
Reserves and accumulated profits were earned by all partners during the period when the old profit-sharing ratio was in effect, including the retiring or deceased partner. They have a rightful share. Distributing in the new ratio (which excludes the retiring partner) would deny them their entitlement. NCERT's principle: all adjustments (reserves, revaluation, goodwill) reflect the partnership as it existed before reconstitution. Only after settlement do continuing partners operate under the new ratio. CBSE deducts 1 mark if reserve distribution is missing or done in wrong ratio.
My child's school uses T.S. Grewal or D.K. Goel instead of NCERT for Reconstitution — Retirement / Death of a Partner Class 12. Will this create problems in the board exam?+
No. T.S. Grewal and D.K. Goel are supplementary books that follow the same CBSE syllabus and NCERT principles. They offer more practice problems and slightly different presentation, but the core concepts (gaining ratio, executor's account, revaluation, goodwill adjustment) are identical. CBSE board exam questions are set from NCERT's framework. As long as your child understands NCERT terminology and the standard journal-entry sequence, the reference book does not matter. In fact, solving numericals from multiple authors improves speed and accuracy. CBSETUTOR.ai's AI tutor is trained on NCERT but recognises problems from Grewal and Goel, so students get consistent explanations regardless of source.
How many marks does Reconstitution — Retirement / Death of a Partner carry in CBSE Class 12 Accountancy board exam?+
Typically 12–14 marks out of the 80-mark theory paper (2024-25 pattern). This breaks down as: one 6-mark or 8-mark long numerical (journal entries, capital accounts, balance sheet), one 3-mark or 4-mark short numerical or theory question (gaining ratio, executor's account format), and 1–2 MCQs (1 mark each) in the case-based section. Partnership Accounts as a whole (admission, retirement, death, dissolution) is approximately 20 marks. Given the high weightage and scoring potential (numerical answers are objective, so full marks if correct), mastering this chapter is critical to scoring 90+ overall.
What are the most common journal entries I must know for Reconstitution — Retirement / Death of a Partner Class 12?+
Memorise these five core entries: (1) Reserve distribution — Dr General Reserve/P&L, Cr All Partners' Capital (old ratio). (2) Revaluation adjustments — Dr/Cr assets/liabilities, then Dr/Cr Revaluation A/c; transfer balance to partners in old ratio. (3) Goodwill to retiring partner — Dr Continuing Partners' Capital (gaining ratio), Cr Retiring Partner's Capital. (4) Settlement — Dr Retiring Partner's Capital, Cr Bank / Loan Account. (5) Capital adjustment — Dr/Cr Partner's Capital, Cr/Dr Bank (bring in or withdraw). Write narrations clearly; CBSE awards 0.5 mark per narration. Date each entry if the question specifies dates. Practice writing these 20 times until muscle memory takes over during the exam.
Is interest on the retiring partner's loan account debited to Profit & Loss Account or Profit & Loss Appropriation Account?+
Interest on any loan — including a retiring or deceased partner's loan — is a charge against profits, not an appropriation. Therefore, debit Interest on Loan to Profit & Loss Account (appears on the debit side before arriving at net profit), not P&L Appropriation. However, in practice and in many NCERT examples, if the interest is calculated post-year-end, it may be shown in P&L Appropriation for convenience. CBSE marking schemes accept both as long as the treatment is consistent and the balance sheet reflects the loan with accrued interest correctly. If in doubt, follow the method shown in your NCERT solved example or state your assumption in the answer.

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