Answer the following.

1) What is meant by Retirement of a Partner?
Ans: Retirement of a partner refers to a process in which a partner leaves the firm or severs his relations with other partners on account of his old age, continued ill health, loss of interest in the firm, misunderstanding amongst the partners, etc.

2) What is the Benefit Ratio?
Ans: Profit sharing ratio which is acquired by the continuing partners on account of retirement or death of a partner is called Benefit ratio or Gain ratio.

3) What is New Ratio?
Ans: The ratio in which profits or losses are shared by the continuing partners after retirement of a partner is called New Profit Sharing ratio.

4) How is the amount due to the retiring partner settled?

Ans: The amount due to a retiring partner is settled as per the terms of partnership agreement or otherwise mutually agreed upon either in lumpsum or in instalments.

5) How is Gain Ratio calculated?

Ans: Gain ratio is calculated at the time of retirement of a partner by deducting old ratio from new ratio.

6) Why is a retiring partner’s capital account credited with goodwill?

Ans: Goodwill is an intangible assets or benefits accrued to the firm and its benefits are transferred to retiring partner’s Capital A/c by giving credit.