Ascertainment of Due Amount to Outgoing Partners in Retirement of Partner

Ascertainment of Due Amount to the Outgoing Partners in terms of Retirement of a Partner

The retirement of a partner extinguishes his interest in the Partnership firm and this leads to the dissolution of the firm or reconstitution of the Partnership. Any withdrawals and interest due thereon should be deducted from the amount payable to the outgoing partner. After the retirement of a partner, the remaining partners may decide to adjust
their capital. The total amount to be given to the retiring partners includes the following:

(i) The balance is shown by the retired partnering capital account.

(ii) The balance is shown by the retired partnering current account.

(iii) Any interest or commission due to retiring partners.

(iv) Any salary is due to retiring partners.

(v) Any share of profit or loss till the date of retirement.

(vi) Share in the goodwill of the firm.

(vii) Gain or loss on revaluation of assets and liabilities.

(viii) Any share in the accumulated profits or funds as well as losses appearing in the balance sheet till the date of retirement.

(ix) Share of joint life policy.

(x) Withdrawing and interest on drawing till the time of retirement.

The net amount due to the retiring partner is determined after the necessary addition and deduction of the above items.

Causes for the retirement may be that a retiring partner may be too old or he may have a better opportunity in a different line or he may dislike the co-partners’ attitude or any other reasons. The firm is obliged to make payment to the retiring partners of the firm due to him at the time of retirement.

Calculation of Amount Due to Outgoing Partner:

To find out the amount payable to the retiring partner, the following items are considered:

  • Balance to his Capital Account, as per last Balance Sheet.
  • Proportionate profit on revaluation.
  • Share of goodwill.
  • Interest on capital up to the date of retirement.
  • Salary, if any, payable to him.
  • Share of past profit or loss of the firm.
  • Share of profit till his date of retirement.
  • Share of proceeds of Joint Life Policy.