Ascertaining the Amount Due to Retiring/ Deceased Partner

Ascertaining the Amount Due to Retiring/ Deceased Partner

When a partner retires/dies, he becomes eligible to receive any amount due to him on account of accumulated profits or capital balances. To ascertain the amount due to retiring/ deceased partner a few additions and deductions are required to be made.

To reach the level of ascertaining the final amount due, certain accounting steps need to be followed. These help in figuring out the additions or deductions to be made precisely. The accounting aspects involved are –

  1. Calculation of new profit sharing ratio of partners and the gaining ratio,
  2. Any revaluation of assets/ liabilities,
  3. Goodwill treatment as per the agreement,
  4. Ascertainment of profit or loss on revaluation of assets/ liabilities by making a Revaluation Account,
  5. Any adjustment due to unrecorded assets/ liabilities,
  6. Calculation and adjustment of accumulated profit or loss,
  7. Capital account adjustments and any interest thereon,
  8. Amount to be settled with the retiring/ deceased partners

Calculation of amount remaining due –

The amount remaining due to a retiring partner or legal representatives of the deceased partner includes the following items –

  1. Any credit balance of the capital account of partner is amount due to him,
  2. If there is any current account, then its credit balance is also an obligation of the partnership firm,
  3. Interest on capital, if any, is also added to calculate the amount due,
  4. The portion of the partner in the goodwill,
  5. Share in profits till his date of retirement /death,
  6. Share in accumulated profits over the years,
  7. Revaluation gain of assets and liabilities is also divided between the partners,
  8. Remuneration to be paid to the partner for any services extended by him to the partnership firm. This can be in the form of salary, commission etc.

From the above calculated share, the following deductions are made to arrive at the actual amount due.

  1. If there is any current account, then its debit balance is deducted, as it represents the amount that the partner owes to the firm,
  2. Proportionate amount of goodwill to be written off,
  3. Share in losses till his date of retirement /death,
  4. Share in accumulated losses over the years,
  5. Revaluation loss of assets and liabilities is also divided between the partners,
  6. The share in the drawings of the partnership firm, till the date of retirement/death,
  7. Any interest on the drawings is also deducted.

Conclusion – When a partner retires/ dies, various adjustments are required to be made to settle his account in the books of accounts of the partnership firm. This implies a lot of accounting procedures need to be performed to calculate the amount to be discharged.

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