Accounting for retirement of a partner

Question 1

What should you account for first?

Answer 1

Goodwill

Question 2

What should you account for second?

Answer 2

Revaluation in the old profit-sharing ratio

Question 3

What should you do third?

Answer 3

Transfer retiring partners current account to their capital account

Question 4

What are positive current accounts on the sofp shown as in the capital account?

Answer 4

Credit balances

Question 5

What are the negative current accounts on the sofp shown as in the capital account?

Answer 5

Debit balances

Question 6

What should you do fourth?

Answer 6

Calculate balance on capital account of the retiring partner, do not describe as balance c/d but as bank if withdrawing or paying off debit balance.

Question 7

What should you do fifth?

Answer 7

Calculate the new balances on the capital accounts of the remaining partners

Question 8

What should you do if the retiring partner is unable to repay a debit balance?

Answer 8

Allocate to remaining partners - Garner v Murray rule

Question 9

What is the rule for allocating debit balances?

Answer 9

Garner v Murray rule