Question

Mention any two modes of disposal of amount due to retiring partner.

Hint:

If a question on retirement does not specify how the final balance is settled, standard accounting practice is to transfer the entire balance to the "Retiring Partner's Loan Account".

Answer 1

Step 1: Understanding the Concept:
When a partner retires, their final capital balance (including share of goodwill, revaluation profit, reserves, etc.) becomes due for payment by the firm. The firm must settle this claim.

Step 2: Detailed Explanation:
The amount due to a retiring partner can be disposed of or settled in the following ways (any two):
1. Payment in Lump Sum: The entire amount due is paid off immediately in cash or by bank transfer at the time of retirement.
2. Transfer to Loan Account: The amount due is not paid immediately but is transferred to the retiring partner's Loan Account, to be paid later with interest at an agreed rate (or 6% p.a. as per the Partnership Act if not agreed).
3. Partly in Cash and Partly as Loan: A portion of the due amount is paid immediately in cash/bank, and the remaining balance is transferred to their Loan Account.

Step 3: Final Answer:
Two modes are: 1. Lumpsum payment in cash/bank. 2. Transferring the due amount to the retiring partner's Loan Account.