Retirement and Death of a Partner — Part 2: Settlement, Loan, Capitals, Death and the Balance Sheet: visual lesson, ISC Class 12 Accounts

Lesson

Settlement, loan, capitals, death and the balance sheet

Part 2 — the amount due, the loan account, adjusting capitals, profit till death, the executor's account and the Balance Sheet in horizontal form.

In this lesson you will

Prepare the capital accounts, find the amount due and draw up the Balance Sheet of the reconstituted firm in horizontal form
Prepare the outgoing partner's loan account, with interest accrued and due or accrued but not due
Readjust the continuing partners' capitals, including bringing in cash to pay the outgoing partner
Calculate profit till death on the time or turnover basis and prepare the deceased partner's capital and executor's accounts

Part 2 at a glance

Concept

The amount due to an outgoing partner

Table of what makes up the amount due to an outgoing partner: credits for capital, revaluation profit, reserves, his share of goodwill, interest on capital and, on death, profit till death; debits for losses, drawings and interest on drawings
Added to his capital (credit)	Deducted (debit)
Opening capital (and current account credit)	Current account debit balance; drawings
Share of revaluation profit	Share of revaluation loss
Share of reserves and undistributed profit	Share of accumulated losses, advertisement suspense, book goodwill
Share of goodwill (from the gaining partners)	Interest on drawings
Interest on capital; on death, profit till death	Balance: amount due

Worked example

Worked example 7: capital accounts of Gulmohar Marble Polishers

Bhairavi's due is paid ₹34,000 by cheque; the balance becomes her loan.

Partners' capital accounts of Gulmohar Marble Polishers: all three credited with revaluation profit and reserves and debited with advertisement suspense; Anshuman and Chiranjeev debited 30,000 and 10,000 for goodwill; Bhairavi's 1,74,000 settled by bank 34,000 and loan 1,40,000 rupees
Dr. Particulars	Anshuman (₹)	Bhairavi (₹)	Chiranjeev (₹)	Cr. Particulars	Anshuman (₹)	Bhairavi (₹)	Chiranjeev (₹)
To Advertisement Suspense A/c	6,000	4,000	2,000	By Balance b/d	1,80,000	1,20,000	75,000
To Bhairavi's Capital A/c	30,000		10,000	By Revaluation A/c (profit)	6,000	4,000	2,000
To Bank A/c		34,000		By General Reserve A/c	18,000	12,000	6,000
To Bhairavi's Loan A/c		1,40,000		By Workmen Compensation Reserve A/c	3,000	2,000	1,000
				By Anshuman's Capital A/c		30,000
To Balance c/d	1,71,000		72,000	By Chiranjeev's Capital A/c		10,000
Total	2,07,000	1,78,000	84,000	Total	2,07,000	1,78,000	84,000

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