Principles of Accounting: Example entries upon death or retirement of a partner

////Principles of Accounting: Example entries upon death or retirement of a partner

Principles of Accounting: Example entries upon death or retirement of a partner

  • We have already examined the entries required to record Goodwill in the books upon the death or retirement of one of the partners here
  • We will now look at an example to demonstrate the stages involved

Death/Retirement Example

Peter, George and Muchineripi have been in partnership for the past five years. They own a retail shop in Harare’s CBD where they sell groceries. They share their profits/losses equally. On 31 December 20×8 George decided to retire due to old age. Peter and Muchineripi have decided they will continue with the businesses and continue to share profits equally.

The partners agree that goodwill is to be valued at $150 000 and is to be written off immediately in the new partnership.

The partner’s capital balance on 31 December 20×8:

  • Peter $125 000
  • George $125 000
  • Muchineripi $125 000

Required:

  1. Show the Goodwill entries required to show this change using without using a Goodwill Account
  2. Show the Goodwill entries required to show the retirement of George using a Goodwill Account

Solution

a. Entries without using a Goodwill Account

PeterGeorgeMuchineripiCapital AccountsPeterGeorgeMuchineripi
Details$$$Details$$$
Goodwill Adjustment25 00025 000Balance b/d125 000125 000125 000
Balance c/d100 000175 000100 000Goodwill adjustment50 000

125 000

175 000

125 000

125 000

175 000

125 000

b. Entries using the Goodwill Account

PeterGeorgeMuchineripiCapital AccountsPeterGeorgeMuchineripi
Details$$$Details$$$
Goodwill75 00075 000Balance b/d125 000125 00125 000
Balance c/d100 000175 000100 000Goodwill50 00050 00050 000

175 000 000

175 000 000

175 000 000

175 000 000

175 000 000

175 000 000

Goodwill Account
DetailsAmount ($)DetailsAmount($)
Capital:Capital:
Peter50 000Peter75 000
George50 000Muchineripi75 000
Muchineripi50 000

150 000

150 000

NB:

  • Both methods yield the same result but as always the second method is to be preferred when answering examination questions unless of course when told otherwise

To access more topics go to the Principles of Accounts Notes.

By |2018-03-20T09:59:44+00:00March 20th, 2018|Notes, Ordinary Level Notes, Principles of Accounts Notes|Comments Off on Principles of Accounting: Example entries upon death or retirement of a partner

About the Author:

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.
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