Journal Entries at the Time of Retirement
MODULE - 4
Partnership Accounts
Notes
20
RETIREMENT AND DEATH OF A PARTNER
If you look around, you must have noticed people in your relation and in your neighbourhood running business in partnership. You must have seen people quitting partnership firm or a person dies while in partnership. These are the events that take place during the lifetime of a partnership firm. Some issues arise on the happening of these events involving finance. Some assets and liabilities may need revaluation, goodwill is to be treated and amount of joint life policy is distributed and soon accounting adjustment are required to be made. Whenever such events take place, the firm has to calculate the dues of a partner leaving the firm or that of the deceased. In this lesson you will learn the accounting treatment in the books of the firm in these two cases i.e. retirement of a partner and death of a partner.
OBJECTIVES After studying this lesson, you will be able to: state the meaning of retirement/death of a partner; calculate new profit sharing ratio and gaining ratio; make adjustments relating to goodwill, accumulated reserves and undistributed profits at the time of retirement/death of a partner; explain the need for revaluation of assets and reassessment of liabilities at the time of retirement/death; prepare the revaluation account relating to retirement/death of a partner; illustrate the various methods of settling the claim of retiring partner and the related accounting treatment; illustrate the accounting treatment of partners capital and its adjustment; ascertain profit up to the date of death of a partner; prepare the account of the deceased partner’s executor.
180
ACCOUNTANCY
Retirement and Death of a Partner 20.1 RETIREMENT – MEANING, CALCULATION OF NEW PROFIT SHARING RATIO AND GAINING RATIO When one or more partners leaves the firm and the remaining partners continue to do the business of the firm, it is known as retirement of a partner. Amit, Sunil and
Partnership Accounts
Notes
20
RETIREMENT AND DEATH OF A PARTNER
If you look around, you must have noticed people in your relation and in your neighbourhood running business in partnership. You must have seen people quitting partnership firm or a person dies while in partnership. These are the events that take place during the lifetime of a partnership firm. Some issues arise on the happening of these events involving finance. Some assets and liabilities may need revaluation, goodwill is to be treated and amount of joint life policy is distributed and soon accounting adjustment are required to be made. Whenever such events take place, the firm has to calculate the dues of a partner leaving the firm or that of the deceased. In this lesson you will learn the accounting treatment in the books of the firm in these two cases i.e. retirement of a partner and death of a partner.
OBJECTIVES After studying this lesson, you will be able to: state the meaning of retirement/death of a partner; calculate new profit sharing ratio and gaining ratio; make adjustments relating to goodwill, accumulated reserves and undistributed profits at the time of retirement/death of a partner; explain the need for revaluation of assets and reassessment of liabilities at the time of retirement/death; prepare the revaluation account relating to retirement/death of a partner; illustrate the various methods of settling the claim of retiring partner and the related accounting treatment; illustrate the accounting treatment of partners capital and its adjustment; ascertain profit up to the date of death of a partner; prepare the account of the deceased partner’s executor.
180
ACCOUNTANCY
Retirement and Death of a Partner 20.1 RETIREMENT – MEANING, CALCULATION OF NEW PROFIT SHARING RATIO AND GAINING RATIO When one or more partners leaves the firm and the remaining partners continue to do the business of the firm, it is known as retirement of a partner. Amit, Sunil and