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Amount due to Retiring/Deceased Partner (To be credited to his capital account)
1. Credit Blanca of his capital.
2. Credit Balance of his current account (if any).
3. Share of Goodwill. (By gaining partners)
4. Share of Reserves of Undistributed profits.
5. His share in the profit on revaluation of assets and liabilities.
6. Share in profits up to the date of Retirement/Death. (By p & L suspense A/c)
7. Interest on capital if involved.
8. Salary if any
Deduction from the above sum (to be debited to capital account)
1. Debit balance of his current account (if any)
2. Share of existing Goodwill to be written off.
3. share of accumulated loss.
4. Drawing and interest on drawings (if any)
5. Share of loss on account of Revaluation of assets and liabilities.
6. His share of business loss up to the date of Retirement/Death (To p & L) suspense A/C)
Accounting Treatment
1. Calculation of new profit sharing ratio and gaining ratio
2. Treatment of goodwill.
3. Evaluation a/c preparation with the adjustment in the respect of unrecorded assets /liabilities.
4. Distribution of reserves and accumulated profits/loss.
5. Ascertainment of share of profit/loss till the date of retirement. death.
6. Adjustment of capital if required.
7. Settlement of the Accounts due to Retired/Deceased partner.
Following situations may arise
1. When no information about new ratio or gaining ratio is given in question
In this case it considered that the share of the retraining partner is acquired the remaining partners in the old ratio. Then no need to calculate the new paining ratio as it will be the same as before.
2. Gaining ratio is given which is different than the old ratio in this New share of continuing partner = has old share + gained from outgoing partner.
Steps to be followed
1. When old good will appears in the books then first of all this is writer in the old ratio. Remember Old Goodwill old Ratio
All Partner’s capital A/C Dr.
To Good Will A/c
2. After written off of goodwill adjustment of retiring partner’s share goodwill will be made through the following journal entry.
Remaining Partner’s Capital, A/C Dr. (in gaining
To Retiring/Deceased Partner’s Capital A/c
Hidden Goodwill
Sometimes goodwill is not given in the question directly, But if a firm agrees to pay a sum which is more than retiring partner’s balance in capital also after making all adjustment with respect to resaves, revaluation of assets and liabilities etc. then cases amount is treated as his share of goodwill (known as hidden goodwill)
When the retiring partner is paid full amount either in cash or by coeque.
Retiring Partner’s Capital A/cDr.
To Cash Bank A/c
2. When the retiring partner is paid nothing in cash then the whole amount due is transferred to his loan A/c
Retiring Partner’s Capital A/cDr.
To retiring partner’s Loon A/c
3. When Retiring Partner is partly paid in cash and the remaining amount in treated Loan.
Retiring Partner’s Capital A/cDr. (Total Amount due)
To Cash Bank A/c (Amount Paid)
To Retiring Partner’s Loan A/c (Amount of Loan)
Settlement of loan of the Retiring Partner
Loan of the retiring partner is disposed off accordingly of the pre decided term and conditions among the partners. Normally the Principal amount is paid in few equal installments. In such cases interest is credited to the Loan A/c on the basic of the amount outstanding at the beginning of each year and the amount paid it debited to loan A/c. The following Journal entries are done