Question

What problems arise on retirement or death of a partner? How are they settled?

Hint:

The retirement or death of a partner requires careful accounting for goodwill, revaluation of assets, and fair settlement of the partner’s capital.

Answer 1

Step 1: Issues on Retirement or Death of a Partner.
When a partner retires or dies, the partnership must be restructured. Several problems arise:
1. **Valuation of Goodwill:** The goodwill of the firm must be valued and transferred to the retiring or deceased partner’s capital account.
2. **Settlement of Capital:** The retiring partner’s capital must be repaid or transferred to the continuing partners based on the revaluation of assets.
3. **Distribution of Profits:** The share of profits and losses up to the date of retirement or death must be calculated and settled.
4. **Liability for Debts:** Any liabilities or obligations owed by the firm must be settled with the retiring or deceased partner.
Step 2: Settling the Issues.
The above issues are settled in the following ways:
1. **Goodwill Adjustment:** The remaining partners agree on the value of goodwill, which is credited to the retiring or deceased partner’s capital account.
2. **Revaluation of Assets and Liabilities:** The assets and liabilities are revalued to reflect their current market value, and any profit or loss is shared among the partners.
3. **Final Payment:** Any outstanding capital balance is paid off by the remaining partners based on the agreed-upon ratio.
Step 3: Conclusion.
Thus, the problems arising from the retirement or death of a partner are settled through the revaluation of assets, adjustment of goodwill, and proper distribution of the capital and profits. Final Answer: \[ \boxed{\text{Issues arising from the death or retirement of a partner are settled by adjusting goodwill, capital, and profits.}} \]