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Difficulty: MediumRetirement and Death of a Partner

Fill in the blanks with the correct accounting term and numerical figure regarding the retirement of a partner.

Answer:In partnership accounting, upon the retirement of a partner, any net gain arising from the revaluation of assets and liabilities is distributed to all partners using their 【old profit sharing】 ratio. For example, if partner Tarik retires from a firm where he holds a 14\frac{1}{4} share, and the total revaluation gain is ₦60,000\text{₦}60,000 with his initial capital account balance standing at ₦140,000\text{₦}140,000, his updated capital balance prior to settling goodwill will be ₦\text{₦}【155,000】.

Answer

The revaluation profit is distributed according to the old profit sharing ratio, and Tarik's updated capital balance is ₦155,000.
Upon the retirement of a partner, all existing assets and liabilities are revalued, and the resulting gain or loss is shared among all partners in their old profit-sharing ratio. Tarik's 1/4 share of the ₦60,000 revaluation gain equals ₦15,000. Adding this ₦15,000 gain to his existing capital account balance of ₦140,000 yields an updated capital balance of ₦155,000.

Step-by-Step Solution

1
Identify the ratio used for distributing revaluation profit upon retirement.
Revaluation gains or losses accumulated prior to retirement belong to existing partners in their old profit-sharing ratio.
The assets and liabilities were accumulated while all existing partners were active under the previous agreement.
2
Calculate Tarik's share of the revaluation gain.
\(\frac{1}{4} \times \text{₦}60,000 = \text{₦}15,000\)
Tarik owns a one-quarter share in the partnership.
3
Compute Tarik's updated capital balance by adding his revaluation share to his initial balance.
\(\text{₦}140,000 + \text{₦}15,000 = \text{₦}155,000\)
Revaluation gains increase the retiring partner's capital entitlement.

Key Concept

Accounting for Revaluation Gain on Partner Retirement
Estimated Time:1m 30s
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Topics

Retirement and Death of a Partner

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