X, Y and Z are partners in a business sharing profits and losses in the ratio of 3 : 2 : 1. On 30th June 2000, Z retired from the business when his capital account after all necessary adjustments showed a balance of Rs. 1,24,000. It was agreed that he should be paid Rs. 25,000 in

Question

X, Y and Z are partners in a business sharing profits and losses in the ratio of 3 : 2 : 1. On 30th June 2000, Z retired from the business when his capital account after all necessary adjustments showed a balance of Rs. 1,24,000. It was agreed that he should be paid Rs. 25,000 in cash, Rs. 9,000 through bills payable and on retirement, the balance in five equal yearly instalments with interest at 6 % per annum. You are required to show Z's Loan Account till it is fully paid.

Accepted Answer

>

> [!TLDR]
> Z's Loan of Rs.90,000 is repaid in 5 equal yearly instalments of Rs.18,000 principal, plus interest @6% p.a. on the reducing balance; the account is fully closed after 5 years.
>
> **Step 1 — Amount converted into Z's Loan:**
> Z's capital balance after adjustments = Rs.1,24,000
> Less: Paid in cash = Rs.25,000
> Less: Settled through Bills Payable = Rs.9,000
> Balance transferred to Z's Loan A/c = 1,24,000 − 25,000 − 9,000 = **Rs.90,000**
>
> Annual principal instalment = 90,000 / 5 = **Rs.18,000**
>
> **Z's Loan Account (year-by-year working):**
>
> Year 1 (30.6.2000 – 30.6.2001):
> Opening balance: Rs.90,000
> Interest @6% on Rs.90,000 = Rs.5,400
> Paid: Principal 18,000 + Interest 5,400 = Rs.23,400
> Closing balance: 90,000 − 18,000 = Rs.72,000
>
> Year 2 (30.6.2001 – 30.6.2002):
> Interest @6% on Rs.72,000 = Rs.4,320
> Paid: 18,000 + 4,320 = Rs.22,320
> Closing balance: 72,000 − 18,000 = Rs.54,000
>
> Year 3 (30.6.2002 – 30.6.2003):
> Interest @6% on Rs.54,000 = Rs.3,240
> Paid: 18,000 + 3,240 = Rs.21,240
> Closing balance: 54,000 − 18,000 = Rs.36,000
>
> Year 4 (30.6.2003 – 30.6.2004):
> Interest @6% on Rs.36,000 = Rs.2,160
> Paid: 18,000 + 2,160 = Rs.20,160
> Closing balance: 36,000 − 18,000 = Rs.18,000
>
> Year 5 (30.6.2004 – 30.6.2005):
> Interest @6% on Rs.18,000 = Rs.1,080
> Paid: 18,000 + 1,080 = Rs.19,080
> Closing balance: 18,000 − 18,000 = **Nil**
> …

Dr.	Retiring Partner's Capital Account	Cr.
Particulars	Amount (₹)	Particulars
To Revaluation A/c (loss)	xxx	By Balance b/d
To Goodwill A/c (if written off)	xxx	By Revaluation A/c (gain)
To Retiring Partner's Loan A/c	xxx	By General Reserve A/c
To Bank A/c (final payment)	xxx	By Profit & Loss A/c
		By Goodwill A/c (remaining partners)
		By Interest on Capital (if any)
Total	xxx	Total

Concept understanding — Partner Retirement Methods

Partner Retirement Methods – A First Look

What Does "Retirement of a Partner" Mean?

Why Does This Matter?

The Accounting Treatment – Step by Step

Step 1: Revalue Assets and Reassess Liabilities

Step 2: Adjust for Goodwill

Step 3: Transfer Reserves and Accumulated Profits

Step 4: Settle the Retiring Partner's Account

The Capital Account Format (as per NCERT)

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