How is the Partner’s Capital Adjusted?

During the death or retirement of a partner, rest of the partners might ascertain to accustom their capital contributions in their profit sharing ratio (PSR). In such a scenario, the total sum of balance in the capital of the partners who will continue, may be treated as the total capital of the new enterprise, until and unless stated otherwise. Then, to determine the new capital of the partners who will continue, the total capital of the enterprise is split amongst the remaining partners according to the new profit sharing ratio (NPSR), and the deficit or excess of capital in the individual capital a/c may be accomplished. Such shortage or excess shall be modified by the withdrawal of contribution in cash. The following journal entries will be recorded in such a case :

For excess capital withdrawn by the partner

Partners’ Capital A/c

To Cash / Bank A/c

Dr.

For amount of capital to be brought in by the partner

Cash / Bank A/c

To Partners’ Capital A/c

Dr.

(The above mentioned Journal entries are fetched from NCERT website)

Contemplate the following scenarios:

The modification of the continuing partner’s capitals may incorporate any one of the 3 ways as delineated as follows :

  • When the capital of the new enterprise as determined by the partners is stated

The above mentioned is the concept that is explained in detail about Adjustment of Partner’s Capital for the class 12 Commerce students. To know more, stay tuned to BYJU’S.