Question

After the retirement of a partner payment to the retiring partner is being made as $Rs.20,000$ after every certain period of time. This type of payment is ________.

• A. Lump sum payment method
• B. Equal payment method
• C. Decreasing payment method
• D. All of the above

Answer 1

The correct option is B Equal payment method

At the time of retirement of a partner, adjustments takes place. Whenever, a partner retires, the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to be paid to discharge the claims of the retiring partners. Assets and liabilities are revalued, value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. Revaluation profit and reserves are transferred to capital or current accounts of partners. lastly, final amount due to the retiring partner is determined and discharged.

There are various method of discharging the amount due to the retiring partner one of them is Equal payment method.

Equal payment method - This is a method of discharging amount due to the retiring partner. Under this method equal some of payment is made to the retiring partner after every certain period of time.

Therefore, in the given question, Equal payment method is used to pay the partner at the time of retirement.