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CMA Intermediate · Financial Accounting · Retirement of Partner

On retirement of a partner, the amount due to him is not paid immediately but is transferred to his loan account. In the final balance sheet of the continuing firm, where is it shown, and what additional right does the retired partner have if the deed is silent on interest and payment is not made?

The amount is shown as a liability (loan) in the continuing firm's balance sheet. If the firm continues without settling the account and the deed is silent, the retired partner may claim either 6% p.a. interest or the share of profits attributable to his outstanding money.

  1. AAs a liability; he may claim interest at 6% p.a. or a share of profits as per his choiceCorrect
  2. BAs part of partners' capital; no interest is payable
  3. CAs a reserve; interest at 12% p.a. is payable
  4. DAs a contingent liability; no interest is payable

Explanation

The amount due is a liability of the firm and shown as a loan on the liabilities side. Under the Indian Partnership Act, if the continuing partners carry on the business without final settlement, the retired partner may claim either interest at 6% p.a. or the profit share attributable to his money. It is not capital, a reserve, or a contingent liability.

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