Department of Technical Education

Andhra Pradesh
Name : J.SATYANARAYANA RAO

Designation : Sr. Lecturer

Branch : Commercial & Computer Practice

Institute : Govt polytechnic for Women Guntur, Guntur Dt.

Year/Semester : IV Semester

Subject : Accountancy –III

Subject Code : CCP-402

Topic : Retirement of Partner

Duration : 50 minutes

Sub-topic : Procedure to prepare P&L Adjustment Account

Teaching Aids : PPT Animation

CCP402.53 1
Recap Of Last Class:
 Good will is measured at the time of
admission, death, retirement and dissolution
or sale of firm’s business

 Its accounting treatment is very important in

such situations.

 There are difference methods of valuation of

good will like

4. Average profits methods

5. Super profits methods

CCP402.53 2
6. Capitalization method
Objectives

On the completion of this period you

would be able to:
• Revaluation of assets & liabilities on
partner’s retirement.
• Distribution of accumulated/ undistributed
profits and reserves etc.

CCP402.53 3
Points to review:
 We have already learnt settlement of goodwill and
new profit sharing ratio
 Adjustments of accumulated reserves and
undistributed profits at the time of Retirement.
 The reserves or undistributed profits appearing on
the liability side of the Balance Sheet are Past
Profits.
 Undistributed profits strengthen the financial
position of the firm.

CCP402.53 4
• Retiring partner has right over undistributed
profits.

• Divide the accumulated Reserves or

undistributed profit among all the partners in
their old profit or loss sharing ratio.

• When distribution is over, they do not appear in

the Balance sheet.

CCP402.53 5
Journal entry for transfer of past profits

General Reserves A/c Dr.

Profit & Loss A/c Dr.
To All Partners Capitals A/c
(Being transfer of general reserves and profit in
the old profit sharing ratio.)

CCP402.53 6
Entry for transfer of past profits it
retries partner only
General Reserve A/c Dr.

Profit & Loss A/c Dr.

To Retiring Partner Capital A/c

(Being the share of accumulated profits

transferred to Retiring Partner’s Capital A/c.)

CCP402.53 7
Revaluation Of Assets And Liabilities:

• All the assets and liabilities should be revalued to

ascertain its true value.
• The Retired partner has the right to withdraw his share
of profit or sustaining loss arisen out of values of
Assets and Liabilities.

CCP402.53 8
• All necessary adjustments in the value of assets
and liabilities should be made through
Revaluation account.

• The resultant profit or loss should be distributed

among the partners (including retired
partner) and transferred to their respective capital
accounts.

CCP402.53 9
Method Or Mode Of Payment To
Retiring Partner
 The retiring partner may be paid in full case or
 The balance in his account may be transferred
to his loan acc by allowing him interest or
 The part payment may be made and the
balance to be transformed to his loan acc.

CCP402.53 10
Model Entries On Revaluation Of
Assets:
 The changes in the value of assets and liabilities
are recorder in a separate account known as
“Profit and Loss adjustment account or
Revaluation account.”
 If there is profit due to Revaluation on assets and
liabilities, it should be credited to old partner’s
capital accounts in their old profit sharing ratio.
 Similarly if there is loss, it should be debited to
old partners capital Accounts.

CCP402.53 11
Adjustment Entries:- (Model)

• If the value of assets are decreased.

Profit & Loss Adjustment A/c Dr.
To Name of the asset
(Being the decrease in the value of assets
recorded)
5. If the value of assets are increased.
Name of the Assets A/c Dr.
To Profit & Loss Adjustment A/c
(Being the appreciation in the value of assests
recorded)
CCP402.53 12
• If the value of liabilities has decreased
Liabilities A/c Dr.

To Profit & Loss Adjustment A/c (Being the

value of liability decreased)
4. If the value of liabilities has increased
Profit and Loss Adjustment A/c Dr.

To Liabilities A/c (Being the value of liabilities are

increased)

CCP402.53 13
• If the result of Revaluation of
Assets and Liabilities shows
Profit, it should be credited to old
partners account:
Profit and Loss Adjustment A/c Dr.
To Old Partner’s Capital A/c
(Being the profit on revaluation transferred to old
partners `capital Accounts)

CCP402.53 14
6. If the result of Revaluation
assets and Liabilities shows
Loss.
 Old Partner’s Capital A/c Dr.
 To Profit and Loss Adjustment A/c
(Being the loss on revaluation of assets
transferred to old partner’s capital accounts)

CCP402.53 15
Eg1 : X,Y,Z were partners sharing in
3:2:1 on 1st January, 2003 Z retired

Liabilities Assets
General Reserve 6,000 Plant 30,000
Expenses 2,000 Patents 3,000
Bills Payable 5,000 Debtors 9,500
Creditors 10,000 Stock 11,000
Capitals:- Cash 500
X 12,000
Y 10,000
Z 9,000

54,000 54,000

CCP402.53 16
Adjustment:
 Goodwill to be valued Rs.12,000 but no goodwill
account has to be raised.
 Expenses owing are to be brought down
Rs.1,500.

CCP402.53 17
• Plant is to be valued at 10% less and patents at
Rs.4,000

• The total capital of the new firm will be fixed at

Rs.25,000 to be contributed by partners in
profit sharing ratio.

• New ratio between X and Y will be 3:2

• Prepare Revaluation Account

CCP402.53 18
Solution to Eg:1
Dr Revaluation Account Cr
To Plant 3,000 By Expenses 500
owing
By Patents 1,000
By X 750
By Y 500
By Z 250 1,500

3,000 3,000

Total
Total: :
CCP402.53 19
Summary
• Retiring partner has right to share the profits or
less on revaluation of Assets and Liabilities.

• Goodwill will be Calculated and Retiring partners

share should be ascertained

• Divide the accumulated Reserves or undistributed

profit among all the partners in their old profit or
loss sharing ratio.

• When distribution is over, they do not appear in the

Balance sheet.
CCP402.53 20
Revaluation Of Assets And
Liabilities:
 All the assets and liabilities should be
revalued to ascertain its true value.
 The Retired partner has the right to withdraw
his share of profit or sustaining loss arisen
out of values of Assets and Liabilities.

CCP402.53 21
 All necessary adjustments in the value of
assets and liabilities should be made through
Revaluation account.

 The resultant profit or loss should be

distributed among the partners (including
retired partner) and transferred to their
respective capital accounts.

CCP402.53 22
Questions
1. What is the mode of payment to a Retired
Partner?
2. Why Assets & Liabilities are valued when a
Partner Retires ?
3. What are the methods adopted for distribution of
Goodwill to Retired Partner?

CCP402.53 23
Assignment
 Solve a simple problem on revaluation
from the exercise in text book

CCP402.53 24