If a partner retires in the middle of the year his/her share of profit from the date of last balance sheet till the date of retirement will be transferred to..............
Answer & explanation
Correct answer: option 4
The correct answer is option 4- Profit & Loss Suspense A/c debit side.
If a partner retires in the middle of the year his/her share of profit from the date of last balance sheet till the date of retirement will be transferred to debit side of the Profit & Loss Suspense A/c.
Normally retirement of a partner takes place at the end of the accounting period. But there can be a case where a partner decides to retire in the middle of the year. In such a case the claim shall include- share of profit or loss, interest on capital, and interest on drawings if any, from the date of the last balance sheet to the date of retirement. For being retiring partners share of profit for the intervening period to books of account, the following journal entry is recorded.
(i) Profit & Loss Suspense A/c Dr.
To Retiring Partners Capital A/c
(Share of profit for intervening/period).
Later, Profit and Loss suspense account is closed by transferring the amount to the gaining partners capital account in their gaining ratio. The journal entry is:
(ii) Gaining Partners Capital A/c Dr. (in gaining ratio)
To Profit & Loss Suspense A/c