On the retirement of a partner, how is the retiring partner's share of goodwill normally adjusted when goodwill is not raised in the books?
Correct answer: B. Debit continuing partners in gaining ratio and credit retiring partner
- A. Debit the retiring partner and credit continuing partners
- B. Debit continuing partners in gaining ratio and credit retiring partner
- C. Debit all partners equally and credit the bank account
- D. Debit the revaluation account and credit outside creditors
Explanation
The continuing partners obtain the retiring partner's share of future profits, so they compensate the retiring partner for his share of goodwill. Their capital accounts are debited in the gaining ratio, while the retiring partner's account is credited.
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About Partnership Accounts
Partnership accounts cover the partnership agreement, capital and current accounts, profit and loss appropriation, salaries, interest on capital, interest on drawings and profit-sharing ratios. They also address changes in partnership, including admission, retirement, goodwill, revaluation, dissolution and the settlement of partners’ balances.
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