Retirement/Death of a Partner During the Accounting Year: In extra ordinary circumstances a partner retires during the accounting year. Similarly, in case of death of a partner, the amount payable to the legal heir of the deceased partner had to be determined on any date falling during the accounting year. In such situation the following adjustments are made to determine the amount payable to the retiring partner or the legal heir of the deceased partner.
1. Salary, Bonus, Commission and Fee etc.: Salary, bonus etc. of the partner from the date of last balance sheet till the date of death/retirement of the partner is credited to the capital/current account.
2. Interest on Capital: Interest on capital from the date of last balance sheet till the date of death/retirement of partner is credited to capital/current account of the partner.
3. Drawings and Interest There On : Any drawings and interest thereon if any from the date of last balance sheet till the date of the death/retirement is debited to capital/current account of the partner.
4. Life Insurance Policy: If joint or separate life policies are taken on the lives of the partners, then retiring/deceased partner’s share is calculated and his share is credited the capital/ current account. (This has already been explained in earlier)
5. Share in Firm’s Profit: Profits are calculated from the date of last balance sheet till the date of retirement Death of the partner. This can be computed by one of the following methods:
(i) On Time Basis : Either on the basis of immediately preceding year or on the basis of average of past few years, the proportionate profit from the date of last balance sheet till the date of retirement/death is calculated and credited to the capital/current account of the partner.
(ii) On Turnover Basis: The percentage of profit to the turnover in the last year is found and profit on the turnover since the date of last balance sheet till the date of retirement/death on the same percentage is arrived at. The deceased or retired partner’s share is then calculate on the basis of profit sharing ratio and credited to the capital/current account of the partner.
- On the basis of time.
- On the basis of turnover for the period from 1st January to 31st August, 2016 is Rs 80,000.
6. Share in Goodwill: This would be calculated as per rules explained in this chapter and would be credited/debited to capital/current account of the partner.
7. Share in Gain/Loss Arising out of Revaluation of Assets and Liabilities : This would be calculated as per rules explained in this chapter and would be credited /debited to capital/current account of the partner.
8. Share in Reserves and Undistributed Profit: This would be calculated as per rules explained in this chapter and would be credited/debited to capital/current account of the partner.
Thus, following items are shown in the retiring/deceased partner’s capital account.
