Chapter 12, Problem 9QC

To determine

Accounting for Retirement of Partner:

When a partner retires from the firm, the continuing partners need to settle the final obligations owed to the partner.

These final obligations may be in the form of cash, capital invested, transfer of retained profits and reserves and any other liabilities agreed upon by the continuing partners, at the time of retirement of a partner.

When additional payments are to be made to the retiring partner, the extra amount paid is debited to the continuing partners’ capital accounts.

This additional amount is to be debited to the continuing partners accounts in their new profit sharing ratio, i.e. the ratio in which the continuing partners will distribute future profits and losses between them.

The Effect of Retirement of partner on Capital Balances of continuing partners