Accounting Problems 

The accounting problems in the event of retirement of a partner can be put as follows:

(i) Adjustment for Goodwill,

(ii) Revaluation of assets  and liabilities.

(iii) Adjustment regarding Reserves and other undistributed profits.

(iv) Adjustments regarding profit sharing ratios.

(v) Payment to the retiring partner.

1. Goodwill. The retiring partner will be entitled to his share of goodwill in the (inn. The problem of goodwill can be dealt in the following two different ways:

(a) Where goodwill account is already appearing in the books:

In such a case if goodwill is properly valued, no further adjustment will be needed. The amount has already been credited to all the partners including the retiring partner.

(b) Where goodwill account is not appearing in lire book. 

There could be severa1 alternatives:

(1) Goodwill account may be raised in the books. 

Goodwill A/c Dr

To Old Partners’ Capital A/c
[membership level=”2″]
(The amount of goodwill credited to old partners including the retiring partner in their old profit sharing ratio)

(ii) In case continuing partners decide not to c*Iinne with the goodwill account, it may be written off.

Continuing Partners Capital A/cs Dr

To Goodwill A/c
[membership level=”2″]
(Goodwill written off to the continuing partners A/cs (i.e. new partners) in the new ratio).

(iii) Entry may be made only with the share of goodwill of the retiring partner

Goodwill A/c Dr

Only with the share of the retiring partner).

To Retiring Partner’s Capital A/c

The share of goodwill of the retiring partner may be adjusted in the accounts of the continuing partners without raising a goodwill account. 

ContinuingPartners’ Capital A/cs Dr.

(in the ratio in which they gain on retirement)

To Retiring Partner’s Capital A/c