Page 4 - Lesson Note 1

Calculation of Amount Payable to Retiring/Deceased Partner The amount due to a

retiring partner is ascertained by preparing retiring partner’s capital account, after
taking into account the following

Items to be Credited
(i) Opening balance of capital and current account of retiring partner.

(ii) His share in the profit of revaluation account.

(iii) His share of reserve and accumulated profit.

(iv) His share of goodwill of the firm.

(v) His share of profit till the date of his retirement.

(vi) His salary and/or interest on capital due to the retiring partner till the date of

his retirement.

Items to be Debited

(i) Drawings and interest thereon.

(ii) Share in the accumulated losses of past year/years.

(iii) Share in the loss of revaluation account.

Settlement of the Amount Due to the Retiring Partner The amount due to retiring

partner is either paid off immediately or is transferred to his loan account. The
retiring partner’s loan account will appear in the books of the new firm as a
liability until it is paid off finally.

Journal Entries

The following journal entries are passed in this regard
(i) If the Amount is Immediately Paid off

Retiring Partner’s Capital A/c Dr
To Cash/ Bank A/c
(ii) In Case the Amount is Not Immediately Paid

(a) For amount due, transferred to retiring partner’s loan account