Retirement & Death of a Partner

→Following are the adjustments required at the time of retirement of a partner:

1)Calculation of New Profit sharing ratio & Gaining Ratio.

2)Adjustment of a Goodwill.

3)Revaluation of Assets & Liabilities.

4)Adjustments of reserves ,accumulated profits & Losses.

5)Payment to a retiring partner.

6)Adjustment of remaining partner’s capital in their New Profit sharing Ratio.

→Accounting Treatment for Goodwill: 

On retirement of partner,only retiring partner’s share of goodwill is recorded Entry:

1).Remaining Partner’s  Capital/Current a/c Dr.

            To Goodwill a/c{Being retiring partner’s share of goodwill is adjusted in gaining ratio}

2).When Goodwill already appears /Exists in the books of the old firm then it is written off:

                        All Partner’s Capital a/c Dr.

                                    To Goodwill a/c Cr.

                        {Being G/W is written off among all partners in their old profit sharing ratio}

→Accounting Treatment of accumulated profits/losses

1).For transfer of accumulated profits(reserves):

          Reserve fund a/c Dr.

            Profit & Loss a/c Dr.

            General reserve a/c Dr.

                        To All Partner’s cap./current a/c.

2).For transfer of accumulated losses:

            All Partner’s Cap./Current a/c Dr.

                        To Profit & Loss a/c

                        To Advertisement exp./suspense a/c .

3).If any specific reserve is more than actual liability determined ;then

          Workmen compensation fund a/c Dr.

            Investment fluctuation fund a/c Dr.

            Contingency Reserve a/c Dr.

                        To All Partner’s capital/current a/c Cr.

{being surplus of specific funds transferred to capitals in old ratio}

→Settlement of the amount due to Retiring partner:

1)If the amount is paid in cash or by cheque :

            Retiring partner’s Cap.a/c Dr.

                        To Cash/Bank a/c

2).If the amount is not paid in cash :

            Retiring Partner’s cap.a/c Dr.

                        To Retiring Partner’s Loan a/c

Note: 1) If Nothing is given in the question about the payment ,it will be transferred to retiring partner’s loan a/c.

2)In the absence of Interest on retiring Partner’s Loan Interest @6%P.A.is allowed.

                                                Death Of A Partner

→All Entries regarding Goodwill,Reserves,etc.will be same as retirement ;there are two separate accounts are maintained

1)Deceased Partner’s Capital account

2)Deceased Partner’s Executives Account

Deceased Partner’s Capital A/C

→Entry for transfer the amount of Deceased Partner’s Capital a/c:

Deceased Partner’s Capital a/c Dr.                 

       To Deceased Partner’s Executor’s a/c{For the amount due to deceased partner transferred to execuor’s a/c}

→Settlement of Deceased Executor’s a/c :

1)If the amount is Paid in cash :           

          

  Deceased Partner’s Executor’s a/c  Dr.

                     To Cash/Bank a/c 

2)When amount is paid in Instalments:

a)For Interest Due:  

  

 Interest On Deceased Partner’s Executors a/c Dr.

              To Deceased Partner’s Executor’s a/c

b)For Payment of Instalments including Interest:

Deceased Partner’s Executor’s a/c Dr.

                        To Cash/Bank a/c