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Difficulty: MediumRetirement and Death of a Partner

Ade, Bala, and Chukwu are partners in a firm sharing profits and losses in the ratio 4:3:14:3:1 respectively. Bala decides to retire from the partnership. At the date of his retirement, his Capital Account has a credit balance of ₦250,000\text{₦}250,000, while his Current Account has a debit balance of ₦20,000\text{₦}20,000. The firm's goodwill is valued at ₦160,000\text{₦}160,000, and the revaluation of assets and liabilities yields a net profit of ₦40,000\text{₦}40,000. What is the total amount payable to Bala upon his retirement?

Answer: 305000 ₦

Answer

The total amount payable to Bala upon his retirement is ₦305,000.
The amount due to a retiring partner is computed by taking their capital credit balance (₦250,000), deducting any current account debit balance (₦20,000), and adding their share of goodwill (3/8 of ₦160,000 = ₦60,000) and share of revaluation profit (3/8 of ₦40,000 = ₦15,000). Thus, 250,000 - 20,000 + 60,000 + 15,000 = ₦305,000.

Step-by-Step Solution

1
Determine the retiring partner's profit-sharing ratio
Bala's ratio is 3 out of total parts (4 + 3 + 1 = 8), which equals 3/8.
Adjustments for goodwill and revaluation must be shared among partners according to their existing profit-sharing ratio.
2
Calculate Bala's share of Goodwill
3/8 × ₦160,000 = ₦60,000
The retiring partner is entitled to their proportional share of the firm's total goodwill.
3
Calculate Bala's share of Revaluation Profit
3/8 × ₦40,000 = ₦15,000
Net gains arising from the revaluation of assets and liabilities are credited to all partners in their profit-sharing ratio.
4
Sum all credits and subtract debits to find the final settlement figure
₦250,000 (Capital Cr) - ₦20,000 (Current Dr) + ₦60,000 (Goodwill share) + ₦15,000 (Revaluation share) = ₦305,000
A credit balance on capital increases settlement value, a debit balance on current account reduces it, and shares of goodwill and revaluation profit are added.

Key Concept

Partnership Capital Account Settlement on Retirement

Alternative Method

Prepare Bala's Capital/Settlement Account by posting credits (Capital: ₦250,000, Goodwill: ₦60,000, Revaluation Profit: ₦15,000) on the credit side and debiting Current Account (₦20,000) on the debit side; the balancing figure on the debit side represents the amount transferred to Bala's Loan/Executor/Cash Settlement Account (₦305,000).
Estimated Time:1m 30s
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Topics

Retirement and Death of a Partner

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