Amount due to outgoing partner is shown on the balance sheet as his *
Liability
Asset
Capital
Loan
Answers
Amount due to outgoing partner is shown in the balance sheet as his loan .
When a partner retires from the business and if he is to be paid off his due amount immediately, the total capital of the firm is reduced. In such case, the retiring partner may be requested to keep the amount due to him as loan to the firm, so as to be paid gradually in the future. On the other hand, the remaining partner may bring necessary amount in new profit sharing ratio or in same agreed ratio to make payment to the retiring partner. Then afterwards, if agreed, the capitals of remaining partners may be required to be adjusted in new profit sharing ratio in any one of the following three ways:
A. When the total capital is not given:
Step-1 : Calculation of the total capital of the new firm as:
Total capital of the new firm = Aggregate of adjusted old capitals of remaining partners.
Step-2 : Calculations of new capitals of remaining or continuing partners:
New capital of a continuing partner = Total capital X New ratio
Step-3 : Any excess of new capital of a remaining partner, is to be paid off in cash and for the deficiency, the continuing partner has to bring in cash.
B. When the total capital is given :
Step-1 : Calculation of continuing partners' new capital
New capital of continuing partner = Total capital given X New ratio
Step-2 : Any excess capital to be paid to and any deficiency is to be brought by the continuing partners.
C. When the retiring partner is to be paid through cash brought by the remaining partners so that their capitals would be in accordance with new ratio:
Step-1 : Calculation of total capital of new firm
Total capital = Aggregate of old capitals after all adjustment + Shortage of cash to make payment to retiring partner
Step-2 : Calculation of new capital of continuing partners
= Total capital of new firm X New ratio
Step-3 : Deficiency to be brought in by the remaining or continuing partners.
hope it helps you
Explanation:
Amount due to outgoing partner is shown in the balance sheet as his loan . When a partner retires from the business and if he is to be paid off his due amount immediately, the total capital of the firm is reduced.