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Retirement of Partner

The document discusses the retirement of a partner from a partnership firm. When a partner retires, they cease being a partner but the firm continues with the remaining partners. The retiring partner is entitled to their share of the firm's goodwill and adjustments must be made to accounts. Key adjustments include determining new profit-sharing ratios, valuing and adjusting goodwill, revaluing assets and liabilities, and distributing reserves and accumulated profits/losses to compute the amount due to the retiring partner.

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Renu Bala Jain
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208 views

Retirement of Partner

The document discusses the retirement of a partner from a partnership firm. When a partner retires, they cease being a partner but the firm continues with the remaining partners. The retiring partner is entitled to their share of the firm's goodwill and adjustments must be made to accounts. Key adjustments include determining new profit-sharing ratios, valuing and adjusting goodwill, revaluing assets and liabilities, and distributing reserves and accumulated profits/losses to compute the amount due to the retiring partner.

Uploaded by

Renu Bala Jain
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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RETIREMENT OF

PARTNER
Meaning- Retirement of a partner means the retiring
partner ceases to be a partner of the firm but the firm
continues. It means the firm continues its business
with the remaining or continuing partners in
accordance with the new or changed Partnership deed.
A Partner may retire from the firm
1. If there is an agreement to that effect
2. If all the partners agree to his retirement or
3. If the Partnership is at will, by giving a written
notice to the remaining partners of his decision
to retire.
Adjustment Required on Retirement of a
Partner
 Determining New Profit-Sharing Ratio and
Gaining Ratio
 Valuation and Adjustment of Goodwill
 Revaluation of Assets and Reassessment of
Liabilities
 Reserves and Undistributed Profits
(Accumulated Profits)/ Losses.
 Computation of amount due to Retiring
Partner.
 Payment to the Retiring Partner.
2. Valuation and Adjustment of Goodwill

Retiring partner is entitled to his share of goodwill at


the time of retirement because goodwill was earned
by the firm at the time when he was a partner.
Continuing partners compensate the retiring partner
by paying goodwill in their gaining ratio. Value of
goodwill is determined as per the terms of the
partnership agreement or as agreed among them.
Retiring Partner’s share of Goodwill
= Value of Firm’s Goodwill x Profit Share of Retiring
Partner
Valuation of Goodwill
 At the time of retirement of a partner, Goodwill may or may not exist in the books of account of the firm. Accounting treatment of Goodwill will be
carried out accordingly.
When Goodwill does not exist in the books
Gaining Partner’s Capital A/cs Dr.
To Retiring Partner’s Capital A/c
( Goodwill is debited to Gaining Partners in their gaining ratio.)
When Goodwill exists in the books
All Partner’s Capital A/cs Dr. (In old profit ratio)
To Goodwill A/c
(Existing Goodwill Written off)
Gaining partner’s Capital A/cs Dr. (in Gaining Ratio)
To Retiring Partner’s Capital A/cs (with his share of Goodwill)
Sacrifice by a Continuing Partner
Gaining Partner’s Capital A/cs Dr. (who have gained)
To Retiring Partner’s Capital A/cs (with his share of Goodwill)
To Sacrificing Partner’s Capital A/cs (Who has sacrificed)
New profit sharing ratio=1:1
Old Profit Sharing Ration= 2:3:5
Y is gaining 2/10
X’s capital A\c Dr. 10,000
Y’s Capital A\c Dr. 15,000
Z’s Capital A/c Dr. 25,000
To Goodwill A/c50,000
5000 will be distributed in 2:3:5

Y’s Capital A/c Dr. 9000


To X’s Capital A\c 9000
45000X2\10= 9000
Revaluation of Assets and Reassessment of
Liabilities
Dr. Revaluation Account Cr.
Particualrs Amoun Particulars Amoun
t t
To Liabilities A/c (Revise By Assets A/c (Revise
(For increase in the d (for increase in the d
value of Liabilities ) value- value of asset) value-
Book Book
value) value)
To Assets A/cs (Book By Liabilities A/c (Book
(for Decrease in the Value- (For Decrease in the value-
value of asset)) Revised value of Liabilities) Revised
Value) value)
To All Partner’s Capital (Profit)
A/c (old ratio)
Adjustment of Reserves, Accumulated
(undistributed) Profits and Losses
(i) For Distribution of Reserves and Accumulated
Profits
General Reserve A/c Dr.
Profit and Loss A/c Dr.
Investment Fluctuation Dr.
Workment Compensation Reserve A/c Dr.
To Partner’s Capital A/c

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