Revaluation, reserves and profit to date

Everything that happened up to the date the partner leaves is settled with him.

• Revaluation: assets and liabilities are revalued, and the profit or loss is shared among all the partners, including the outgoing one, in the old ratio.
• Reserves and accumulated profits or losses (general reserve, P&L balance) are also shared among all partners in the old ratio.

Profit up to the date of retirement or death, if it falls in the middle of the year. It is estimated, since the accounts have not yet been closed:

• on the basis of last year's profit, or the average profit of past years: profit × period ÷ 12 × his share;
• on the basis of sales: the profit-to-sales ratio of last year, applied to sales up to the date.

His share is credited to his capital account through a Profit and Loss Suspense Account, which is then closed by transferring it to the gaining partners.

For example: last year's profit was 80,000, and Champak (4/10) dies on June 30, three months into a year that began on April 1. His share: 80,000 × 3/12 × 4/10 = 8,000.

Interest on capital and drawings up to the date are also adjusted.