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Question
How is the amount due to the retiring partner settled?
Solution
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.
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RELATED QUESTIONS
State whether the following statement is true or false with reasons.
Retiring partner’s share in profit up to the date of his retirement will be debited to Profit and Loss Suspense Account.
The Balance Sheet of Mr. Mama, Kaka and Mr. Baba who shared profit and losses as 4:3:3 respectively.
| Balance Sheet as on 31 st March 2018 | |||||
| Liabilities | Amount ₹ | Amount ₹ | Assets | Amount ₹ | Amount ₹ |
| Suppliers | 7,000 | Cash | 4,500 | ||
| Loan | 5,000 | Sundry Debtors | 5,000 | ||
| General Reserve | 6,250 | Less: R:D:D | 500 | 4,500 | |
| Capital Account: | Live Stock | 12,500 | |||
| Mama | 20,000 | Motor Car | 4,000 | ||
| Kaka | 15,000 | Furniture | 17,500 | ||
| Baba | 12,250 | Plant | 22,500 | ||
| 65,500 | 65,500 | ||||
Kaka retires on 1st April 2018 on the following terms.
1. The share of Kaka in Goodwill of the firm is valued at ₹ 2,700
2. Furniture to be depreciated by 10% and Motor Car by 12.5%
3. Live Stock to be appreciated by 10% and Plant by 20%
4. A provision of ₹ 2,000 to be made for a claim of compensation.
5. R.D.D. is no longer necessary.
6. The amount payable to Kaka should be transferred to his Loan A/c
The balance sheet of Shivshakti Traders, Mumbai is as follows. Partners share profit and losses as 5:2:3.
Balance Sheet as on 31st March, 2020
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Creditors | 30,000 | Bank | 18,600 | |
| Bills Payable | 1,800 | Debtors | 25,200 | 24,000 |
| General Reserve | 21,000 | (-) R.D.D. | 1,200 | |
| Capital Accounts: | Stock | 30,600 | ||
| Raj | 54,000 | Building | 60,000 | |
| Rahul | 48,000 | Plant and Machinery | 48,000 | |
| Nitin | 26,400 | |||
| 1,81,200 | 1,81,200 |
Rahul retired from the business on 1st April, 2020 on the Following terms:
- The assets were revalued as under:
- Plant and Machinery is to be depreciated by 10%.
- R.D.D. is 10 be increased upto ₹ 1,500.
- Building is appreciated by 10%.
- Stock at ₹ 42,000.
- The goodwill of retiring partner is valued at ₹ 12,000 and the remaining partners decided that goodwill be written back in their new profit sharing ratio which will be 5:3.
- Amount due to Rahul at the time of retirement is to be transferred to his loan account.
Prepare:
- Profit and Loss Adjustment Account
- Partners’ Capital Account
- Balance Sheet of the New firm.
