Question

The amount due to the retiring partner can be made by ________.

• A. lump sum payment method
• B. installment payment method
• C. annuity method
• D. both (A) or (B)

Answer 1

The correct option is D both (A) or (B)

Business of a partnership firm may not come to an end due to the death of a partner. Other partners may shall continue to run the business of the firm. Readjustments takes place in case of death of a partner likewise the case of retirement of a partner. Whenever, a partner dies the continuing partners make gain in terms of profit sharing ratio. Therefore, the remaining partners arrange for the amount to b paid to discharge the claim of deceased 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 of 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 two ways in which amount due to deceased partner is discharged:

1. Lump sum payment method - In this, if the firm has sufficient cash to pay off the amount due to the deceased partner, it pay the amount immediately, this is known as lump sum payment method.

2. Installment payment method - In this, if the firm does not have sufficient cash to pay off the amount due to deceased partner, it pay the amount in installments, this is known as installment payment method.