Overview of Retirement of a Partner and its Effects

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Retirement of a Partner
 
                                                         Represented By
                                                  
Abdul Hannan
 
Introduction
 
A Partner may retire from the frame for
different reasons such as difference
with the other partners better business
opportunity, old age etc.
 
Effects of Retirement of a Partner
 
To terminate and a create a new Partner
Adjustment undrawn profit or accumulated losses
Revaluated and proper adjustment of assets and liabilities.
Combined shares of remaining partners will increased.
 
Adjustments for 
Retirement of a Partner
 
Change in the profit shearing ratio
Goodwill
Revolution of assets and Liabilities
Reverse and Surplus
Partners capital
 
Change in the Profit Shearing Ratio
 
New Profit Shearing Ratio
 
Gaining Ratio
 
 
New Profit Sharing Ratio
 
When a partner is retiring the share of retiring partner may be taken over
by the remaining partners in their old ratio or other ratio
Due to this acquisition the profit sharing ratio between the remaining
partners will changed
The profit shearing ratio between the continuing partners will remain
same
 
Gaining Ratio
 
After retirement of partner the combine share of remining partner will be
Increased
The ratio in which the remaining partners are acquiring the share of the
retiring partner  is called Gaining Ratio
Gaining Ratio = New Ratio – Old Ratio
 
Treatment of Goodwill
 
At the time of retirement of partner the retiring partner is
entitled to his share in the goodwill of the firm.
For share of goodwill of retiring partner Journal will be
 Continuing partners Capital accounts Dr……...........(
Share of retiring partner
)
                    To retiring partner Capital Account.
 
 
Revolution of Assets and Liabilities
 
Reverse and Surplus
 
 
Discussion on Practical Problem
 
Problem on Retirement of a Partner
 
Solution Of The Problem
 
Sources from
 
Modern Accountancy
By M. Hanif And A. Mukherjee
 
Thank You
 
 
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Understanding the process of retirement of a partner in a business entity is essential as it involves various adjustments and implications on the firm's financial structure. When a partner retires, it can lead to changes in profit-sharing ratios, adjustments in assets and liabilities, and the treatment of goodwill. The remaining partners might acquire the retiring partner's share, resulting in a new profit-sharing ratio. Proper adjustments need to be made to ensure a smooth transition and accurate representation of the firm's financial position.


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  1. Retirement of a Partner R epresented B y Abdul Hannan

  2. Introduction A P artner m ay retire from the fram e for different reasons such as difference w ith the other partners better business opportunity, old age etc.

  3. Effects of Retirement of a Partner Effects of Retirement of a Partner To terminate and a create a new Partner To terminate and a create a new Partner Adjustment undrawn profit or accumulated losses Adjustment undrawn profit or accumulated losses Revaluated and proper adjustment of assets and liabilities. Revaluated and proper adjustment of assets and liabilities. Combined shares of remaining partners will increased. Combined shares of remaining partners will increased.

  4. Adjustments for Retirement of a Partner Retirement of a Partner C hange in the profit shearing ratio G oodw ill R evolution of assets and L iabilities R everse and Surplus P artners capital

  5. Change in the Profit Shearing Ratio Change in the Profit Shearing Ratio New Profit Shearing Ratio Gaining Ratio

  6. New Profit Sharing Ratio W hen a partner is retiring the share of retiring partner m ay be taken over by the rem aining partners in their old ratio or other ratio D ue to this acquisition the profit sharing ratio betw een the rem aining partners w ill changed The profit shearing ratio betw een the continuing partners w ill rem ain sam e

  7. Gaining Ratio A fter retirem ent of partner the com bine share of rem ining partner w ill be Increased The ratio in w hich the rem aining partners are acquiring the share of the retiring partner is called G aining R atio G aining R atio = N ew R atio Old R atio

  8. Treatment of Goodwill A t the tim e of retirem ent of partner the retiring partner is entitled to his share in the goodw ill of the firm . For share of goodw ill of retiring partner Journal w ill be C ontinuing partners Capital accounts D r ...........(Share of retiring partner) To retiring partner C apital A ccount.

  9. Revolution of Assets and Liabilities Description(Journal) Description(Journal) Notes Notes If the value of the assets increase Sl Sl 1 Assets Account Dr ( Changed Value) To revolution Account Revolution Account Dr ( Changed Value) To Assets Account Revolution Account Dr ( Changed Value) To Liabilities Account Liabilities Account Dr ( Changed Value) To revolution Account Revolution Account Dr To All Partner Capital Account All Partner Capital Account Dr To Revolution Account 2 If the value of the assets decrease 3 If the value of the Liabilities Increase 4 If the value of the Liabilities decrease 5 For Profit on revolution 6 For Loss on revolution

  10. Reverse and Surplus Reverse and Surplus Sl Sl 1 Description(Journal) Description(Journal) For General Reverse , Profit & Loss and other Reserve Notes Notes General Reserve Account Dr. Profit & Loss Account Dr. Other Resevea Account Dr. To All partners Capital Account All partners Capital Account Dr. To Profit & loss Account 2 For Profit & Loss account Dr. Balance

  11. Discussion on Practical Problem Discussion on Practical Problem

  12. Problem on Retirement of a Partner Problem on Retirement of a Partner

  13. Solution Of The Problem Solution Of The Problem

  14. Sources from Modern Accountancy By M. Hanif And A. Mukherjee

  15. Thank You For Your Attention For Your Attention

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