G. Allman, M. Jagger, and G. Harrison had a partnership which shared profits equ

Question

G. Allman, M. Jagger, and G. Harrison had a partnership which shared profits equally. At the end of 2012, Harrison announced his intention to retire and withdraw from the partnership. Assets were revalued, and the capital accounts were adjusted. After adjustments, the balance sheet appeared as follows: Assets Liabilities & Owners’ Equity Cash $ 55,000 Accounts payable $ 22,000 Inventory 33,000 Allman, capital 69,000 Land 101,000 Jagger, capital 56,000 Harrison, capital 42,000 Total assets $189,000 Total liabilities & owners’ equity $189,000 It was agreed that Harrison would take a cash payment for withdrawal at book value. How much cash did the partnership pay Harrison?

Explanation / Answer

Calculation of Amount Due to Outgoing Partner:

To find out the amount payable to retiring partner, the following items are considered:

1. Balance to his Capital Account, as per last Balance Sheet.

2. Proportionate profit on revaluation.

3. Share of goodwill.

4. Interest on capital up to the date of retirement.

5. Salary, if any, payable to him.

6. Share of past profit or loss of the firm.

7. Share of profit till his date of retirement.

8. Share of proceeds of Joint Life Policy

Any withdrawals and interest due thereon should be deducted from the amount payable to the outgoing partner. The firm is obliged to make payment to the retiring partners of the firm due to him at the time of retirement.

In the given case the retiring partner's share after revaluation of assets and all adjustments is $ 42,000

So, the cash required to be paid to Harrison on his retirement is $ 42,000

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