Adjustments required on retirement of a partner

Adjustments required on retirement of a partner

On retirement of a partner, generally the mutual rights of the continuing partners change. The retiring partner is liable for all the acts which are carried out by the firm until the date of his retirement from the firm. Hence, the accumulated profits, losses and reserves upto the date of his retirement is to be distributed to all the partners. Assets and liabilities have to be revalued and the profit or loss on revaluation is to be distributed to all the partners. The following adjustments are necessary at the time of retirement of a partner:

a)     Distribution of accumulated profits, reserves and losses

b)    Revaluation of assets and liabilities

c)     Determination of new profit sharing ratio and gaining ratio

d)    Adjustment for goodwill

e)     Adjustment for current year’s profit or loss upto the date of retirement

f)      Settlement of the amount due to the retiring partner

Tutorial note: All these adjustments are similar to the adjustments to be done on admission of a partner except determination of profit sharing ratio and settlement of the amount due to the retiring partner.