When a partner retires in the middle of the year and his share of pro…

The correct answer is Option (3) → Profit and loss suspense account is debited

When a partner retires in the middle of the year, the firm’s accounts are not closed on that date. His share of profit for the period from the last balance sheet to the date of retirement is worked out from the previous year’s profit (or an average of past years’ profits), for the months he was a partner, and credited to his capital account, with Profit and Loss Suspense Account debited: Profit & Loss Suspense A/c Dr., To Retiring Partner’s Capital A/c. The suspense account is later closed to the gaining partners.

Note: The NCERT example below has three slips. It prints “the year ending on 31st March, 2017” where it should read March 31, 2019; “Share of Deceased Partner” where Vipul is a retiring partner; and “× 4/10” where Vipul’s share is 1/10, so his share of profit should be Rs. 1,00,000 × 3/12 × 1/10 = Rs. 2,500, not Rs. 10,000. The journal entry (Profit & Loss Suspense A/c Dr., To Vipul’s Capital A/c) is right.