Page 135 - DEBKVOL-1

6.2 Double Entry Book Keeping—CBSE XII

If goodwill already appears in the old Balance Sheet, it is written off by recording the following entry:
All Partners’ Capital/Current* A/cs ...Dr. [In old ratio]
To Goodwill A/c
*In case of Fixed Capitals

• Revaluation of Assets and Reassessment of Liabilities: At the time of retirement of a partner, assets are
revalued and liabilities are reassessed; the difference is recorded in the Revaluation Account. The balance
in the Revaluation Account is transferred to the Capital Accounts of all the partners (including the retiring
partner) in their old profit-sharing ratio.
• Adjustment of Reserves, Accumulated Profits and Losses: At the time of retirement of a partner balances
of reserves, accumulated profits and losses are transferred to Capital Accounts of all partners in their old ratio.
However, if partners decide to record the net effect of reserves, accumulated profits and losses without
affecting their old values, an adjustment entry is passed through Capital Accounts of gaining partners and
sacrificing partners.
• Amount Due to a Retiring Partner: The total amount due to a retiring partner may include:
(i) Capital on the date of the last Balance Sheet.

(ii) Loan by the Partner to the firm.
(iii) Interest or salary, if any, payable to him.
(iv) Share of profit or loss till the date of retirement.

(v) Share in the gain (profit) or loss on revaluation of assets and reassessment of liabilities.
(vi) Share in the goodwill of the firm.
(vii) Share in the General Reserve or Profit and Loss Account appearing in the Balance Sheet.
Out of the total of (i) to (vii), the amount of Loan to the partner, drawings and interest on drawings till the
date of retirement are deducted.
The net amount payable will be settled by paying him through cash/bank or by transferring it to a separate
Loan Account.

Solved Questions

Illustration 1.
X, Y and Z are partners sharing profits in the ratio of 4/9 : 1/3 : 2/9. Y retires and surrenders
1/9th from his share in favour of X and the remaining in favour of Z. Calculate new
profit-sharing ratio and gaining ratio.

Solution: Y’s share of profit = 1/3
1 1 1 3 – 1 2
Y surrenders in favour of X = ; in favour of Z = - = =
9 3 9 9 9