Retirement and Death of a Partner – Important Formula and Format

Students, here are the important formula and formats in Chapter 6 Retirement and Death of a Partner. Please revise the formulas and account formats before you start working out the problems. If you have any doubts, please reach out to us in the comments section.

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Adjustments required on retirement of a partner

The following adjustments are necessary at the time of retirement of a partner:

(1) Distribution of accumulated profits, reserves and losses

(2) Revaluation of assets and liabilities

(3) Determination of new profit sharing ratio and gaining ratio

(4) Adjustment for goodwill

(5) Adjustment for current year’s profit or loss upto the date of retirement

(6) Settlement of the amount due to the retiring partner

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Distribution of accumulated profits, reserves and losses

Date	Particulars	L.F.	Debit	Credit
	Profit and loss Appropriation A/c Dr.		xxx
	General reserve A/c Dr.		xxx
	Reserve fund A/c Dr.		xxx
	Workmen compensation fund A/c Dr.		xxx
	Investment fluctuation fund A/c Dr.		xxx
	To All partners’ capital / current A/c			xxx
	(transferring accumulated profits and reserves in the old ratio)

Date	Particulars	L.F.	Debit	Credit
	All partners’ capital / current A/c Dr.		xxx
	To Profit and loss A/c			xxx
	(transferring accumulated losses in the old ratio)

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Revaluation of assets and liabilities

(a) When revised value of assets and liabilities are shown in the books:

Date	Particulars	L.F.	Debit	Credit
	1. For increase in the value of asset
	Concerned asset A/c Dr.		xxx
	To Revaluation A/c			xxx
	2. For decrease in the value of asset
	Revaluation A/c Dr.		xxx
	To Concerned asset A/c			xxx
	3. For increase in the amount of liabilities
	Revaluation A/c Dr.		xxx
	To Concerned liability A/c			xxx
	4. For decrease in the amount of liability
	Concerned liability A/c Dr.		xxx
	To Revaluation A/c			xxx
	5. For recording an unrecorded asset
	Concerned asset A/c Dr.		xxx
	To Revaluation A/c			xxx
	6. For recording an unrecorded liability
	Revaluation A/c Dr.		xxx
	To Concerned liability A/c			xxx
	7. For transferring the balance in revaluation A/c
	(a) For profit on revaluation
	Revaluation A/c Dr.		xxx
	To All partners’ capital A/c			xxx
	(b) For loss on revaluation
	All partner’s capital A/c Dr.		xxx
	To Revaluation A/c			xxx

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Format of revaluation account

Revaluation Account
Particulars	Rs.	Particulars	Rs.
To Concerned asset A/c (net decrease)	xxx	By Concerned asset A/c (net increase)	xxx
To Concerned liability A/c (net increase)	xxx	By Concerned liability A/c (net decrease)	xxx
To All partners’ capital A/c	xxx	By All partners’ capital A/c	xxx
(profit on revaluation shared in old ratio) *		(loss on revaluation shared in old ratio) *
Total	xxx	Total	xxx

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Determination of new profit sharing ratio and gaining ratio

Gaining ratio

Share gained = New share – Old share

Gaining ratio = Ratio of share gained by the continuing partners

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Calculation of gaining ratio and new profit sharing ratio under different situations

1. When new profit sharing ratio is given

Gaining ratio = Ratio of share gained by the continuing partners

Share gained = New share – Old share

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2. When new profit sharing ratio is not given

(a) Only one partner gains the retiring partner’s share

New share of continuing partner = Old share + Share gained

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(b) More than one partner gains the retiring partner’s share

(i) Proportion of share gained on retiring partner’s share is given

New share of continuing partners = Old share + Share gained

Share gained = Retiring partner’s share × Proportion of share gained

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(ii) Proportion of share gained is not given

When new profit sharing ratio, share gained and the proportion of share gained is not given, the new share is calculated by assuming that share gained is the proportion of the old share.

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Adjustment for goodwill

Date	Particulars	L.F.	Debit	Credit
	Continuing partners’ capital / current A/c (in gaining ratio) Dr.		xxx
	To Retiring partner’s capital / current A/c			xxx
	(adjustment of goodwill)

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Existing goodwill

Date	Particulars	L.F.	Debit	Credit
	All partners’ capital / current A/c (in old ratio) Dr.		xxx
	To Goodwill A/c			xxx
	(Existing goodwill written off)

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Adjustment for current year’s profit or loss upto the date of retirement

Date	Particulars	L.F.	Debit	Credit
	Profit and loss Suspense A/c Dr.		xxx
	To Retiring partner’s capital / current A/c			xxx
	(Retiring partner’s current year share of profit credited to his capital account)

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Settlement of the amount due to the retiring partner

(a) When the amount due is paid in cash immediately

Date	Particulars	L.F.	Debit	Credit
	Retiring partner’s capital A/c Dr.		xxx
	To Cash / Bank A/c			xxx
	(amount due is paid in cash immediately)

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(b) When the amount due is not paid immediately in cash

Date	Particulars	L.F.	Debit	Credit
	Retiring partner’s capital A/c Dr.		xxx
	To Retiring partner’s loan A/c			xxx
	(amount due is not paid immediately in cash)

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(c) When the amount due is partly paid in cash immediately

Date	Particulars	L.F.	Debit	Credit
	Retiring partner’s capital A/c Dr.		xxx
	To Cash / Bank A/c (amount paid)			xxx
	To Retiring partner’s loan A/c			xxx
	(the amount due is partly paid in cash immediately)

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Death of a Partner

Adjustments required on the death of a partner

(i) To transfer the amount due to the deceased partner to the executor or legal representative of the deceased partner.

Date	Particulars	L.F.	Debit	Credit
	Deceased partner’s capital A/c Dr.		xxx
	To Deceased partner’s executor A/c			xxx
	(transfer the amount due to the deceased partner)

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(ii) For payment made

(a) When the amount due is paid in cash immediately

Date	Particulars	L.F.	Debit	Credit
	Deceased partner’s executor A/c Dr.		xxx
	To Cash / Bank A/c			xxx
	(the amount due is paid in cash immediately)

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(b) When the amount due is not paid immediately in cash

Date	Particulars	L.F.	Debit	Credit
	Deceased partner’s executor A/c Dr.		xxx
	To Deceased partner’s executor loan A/c			xxx
	(the amount due is not paid immediately in cash)

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(c) When the amount due is partly paid in cash immediately

Date	Particulars	L.F.	Debit	Credit
	Deceased partner’s executor A/c Dr.		xxx
	To Cash / Bank A/c (amount paid)			xxx
	To Deceased partner’s executor loan A/c			xxx
	(the amount due is partly paid in cash immediately)

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