Four methods of payment to retiring partner

On retirement of a partner his capital is adjusted for goodwill, accumulated profits, revaluation of assets and liabilities etc. to determine the final amount to be paid, which may be treated in four ways mentioned here:

1. Lump sum payment of the amount (paid immediately)

Retiring Partner’s Capital A/c                 Dr.

To Bank A/c

2. Transfer of amount due, to his loan account

Retiring partner’s loan A/c carrying interest at an agreed rate (not less than) 6% opened and shown in the Balance Sheet till it is finally paid off.

Retiring Partner’s Capital A/c                  Dr.

To Retiring Partner’s Loan A/c

3. Part payment of the claim

In this case the claim is partly paid in cash and the remaining amount is transferred to retiring partner’s loan A/c by passing the following journal entry:

Retiring Partner’s Capital A/c                   Dr.

To Bank A/c (amount paid in cash)

To Retiring Partner’s Loan A/c (amount transferred to his Loan A/c)

4. Payment of retiring partner’s loan by annual installments

Loan account is prepared and Installment of loan is calculated by adding the amount of interest.

Interest on Retiring Partner’s A/c            Dr.

To Retiring Partner’s Loan A/c

(For interest due at the end of the accounting year)

Retiring Partner’s Loan A/c                      Dr.

To Bank A/c

(For installment paid including interest)

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