AccountsISC Class 12 · Reconstitution of Partnership: Retirement and Death

Amount Due to a Retiring Partner: ISC Class 12 Accounts

Updated 15 October 2026 · Fact-checked

The amount due to a retiring partner is the closing balance of his capital account after every adjustment: his capital plus his share of reserves, revaluation profit, goodwill, interest, salary and profit to date, minus drawings, his share of losses and interest on drawings. It is paid in cash, transferred to his loan account, or partly both.

Add everything credited to his capital, deduct the debits, and the closing balance is paid in cash, moved to loan, or split.

Illustration drawn for QuestionBuddy.

Understand Amount Due to a Retiring Partner

What the retiring partner is owed. On retirement the partner gives up his share in the firm, so the firm must settle with him. Every item that belongs to him is passed through his capital account first; the closing balance is the amount due.

Credited to his capital account: opening capital; his share of General Reserve and other accumulated profits; his share of revaluation profit; his share of goodwill (debited to the gaining partners, as the syllabus asks for adjustment through capital accounts); interest on capital, salary or commission up to the date of retirement; his share of profit from the last Balance Sheet date to the date of retirement.

Debited: drawings and interest on drawings; his share of revaluation loss; his share of accumulated losses (debit balance of Profit and Loss Account, Advertisement Suspense or Deferred Revenue Expenditure); his share of loss to the date of retirement.

Hidden goodwill. If he is paid more than the balance after all other adjustments, the excess is his share of goodwill. Divide it by his share to find the firm's goodwill.

Paying him. The syllabus covers three routes:

Cash: Retiring Partner's Capital A/c Dr; To Bank A/c.
Loan: the unpaid balance goes to his Loan A/c. Interest on the loan is a charge against profit. At the Balance Sheet date, interest that has accrued but is not yet payable is credited to the loan and carried down; interest accrued and due is paid with the instalment.
Cash brought in by continuing partners: they bring the shortfall, often in the new ratio or so that their capitals end up in the new ratio.

Adjusting continuing partners' capitals. The syllabus lists (a) readjusting their adjusted capitals in the new ratio and (b) fixing capitals on the basis of the new firm's total capital. Any surplus is withdrawn; any deficit is brought in.

Exclusions. Joint Life Policy, Individual Life Policy and the Memorandum Revaluation Account are outside the ISC syllabus; any Balance Sheet is in horizontal format only.

Amount Due to a Retiring Partner: key facts

Amount due to retiring partner: Capital + Share of reserves + Share of revaluation profit + Share of goodwill + Interest, salary and profit to date − Drawings − Interest on drawings − Share of losses; The closing balance of his capital account.
Hidden goodwill (his share): Amount paid in full settlement − Capital balance after all other adjustments; Firm's goodwill = his share of goodwill ÷ his share of profit.
Interest on loan at the Balance Sheet date: Loan balance × Rate × Months from loan date to Balance Sheet date ÷ 12; Accrued but not due: credited to the loan and carried down.
Instalment payment: Instalment of principal + Interest on the unpaid balance for the period; Interest falls as the balance falls.
Cash to be brought in by continuing partners: Amount due to retiring partner + Minimum bank balance − Existing bank balance; Shared as the question directs: new ratio or capital readjustment.

How to answer Amount Due to a Retiring Partner questions

ISC settlement questions are mostly 3-mark capital or loan accounts and 6-mark full settlements with cash brought in. Work in this order and the figures flow without gaps.

1Find the new ratio and the gaining ratio first; you need the gaining ratio for goodwill.
2Prepare the Revaluation Account and share its result in the old ratio, retiring partner included.
3Distribute reserves and accumulated losses in the old ratio.
4Pass the goodwill entry: gaining partners' capitals Dr; To retiring partner's capital (his share only).
5Add interest, salary and profit to the date of retirement; deduct drawings and interest on drawings.
6Close his account to Bank, Loan, or both; prepare the Loan A/c with dates if asked.
7Adjust the continuing partners' capitals as directed and check that the Balance Sheet, if needed, tallies in horizontal format.

Amount Due to a Retiring Partner in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Paying for a share of goodwill on leaving

Suppose four friends run a tuition centre with equal shares. One friend moves to another city. The centre has a loyal student base that the friends value at ₹60,000.

How much should the leaving friend receive for her part of that student base, and who pays it?

Try it first, then show the solutionSolution

Her share of the reputation = ₹60,000 × 1/4 = ₹15,000.
The three friends who stay will now take her quarter of future profits, so they pay her, in the ratio in which they gain.

Answer: She receives ₹15,000 for goodwill, paid by the three continuing friends in their gaining ratio.

Memory hook: The leaver sells; the gainers buy.

Tricks to remember Amount Due to a Retiring Partner

Short memory aids. Say each one aloud once, then use it on a question the same day.

Collect everything, then close
Every credit and debit that belongs to the retiring partner passes through his capital account first; the balance is the amount due.
Use it when: Avoiding items paid directly or forgotten.
Not due yet, carry it down
Interest accrued but not due on the Balance Sheet date is credited to the loan and carried down; interest accrued and due is paid with the instalment.
Use it when: Loan accounts that cross 31 March.
Shortfall = owed + cushion − cash
Cash brought in = amount due + minimum bank balance − bank balance available.
Use it when: 6-mark questions where continuing partners bring cash.

Amount Due to a Retiring Partner: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: What is not credited · 1 mark · MCQBoard level

Which of the following is debited, not credited, to a retiring partner's capital account?
(a) His share of General Reserve
(b) His share of revaluation profit
(c) His share of goodwill
(d) His share of Advertisement Suspense Account

Try it first, then show the solutionSolution

Advertisement Suspense is a deferred loss, an accumulated loss on the assets side.
His share of it reduces what he is owed.

Answer: (d) His share of Advertisement Suspense Account

Example 2: Calculating the amount due · 3 marks · Short answerBoard level

Kiran, Leo and Mohan share profits 5:3:2. Leo retires on 31 March. His capital is ₹1,36,000. The firm has a General Reserve of ₹45,000 and a debit balance in Profit and Loss Account of ₹20,000; revaluation shows a profit of ₹18,000; the firm's goodwill is valued at ₹1,20,000. Leo's drawings for the year are ₹9,000. Calculate the amount due to Leo. (3 marks)

Try it first, then show the solutionSolution

Leo's share is 3/10: reserve ₹13,500; revaluation ₹5,400; goodwill ₹36,000; P&L loss ₹6,000.
Due = 1,36,000 + 13,500 + 5,400 + 36,000 − 6,000 − 9,000.
Due = ₹1,75,900.

Answer: Amount due to Leo = ₹1,75,900.

Example 3: Retiring partner's loan with interest · 3 marks · Short answerHarder board level

Priya retires on 1 October 2025; the firm closes its books on 31 March. ₹2,40,000 is due to her. She is paid ₹60,000 at once; the balance is to be paid in two equal annual instalments with interest at 9% p.a. on the unpaid balance, the first on 30 September 2026. Calculate the interest credited to her Loan A/c on 31 March 2026 and the amount paid on 30 September 2026. (3 marks)

Try it first, then show the solutionSolution

Loan = 2,40,000 − 60,000 = ₹1,80,000.
Interest 1 Oct to 31 Mar = 1,80,000 × 9% × 6/12 = ₹8,100, accrued but not due; balance c/d ₹1,88,100.
30 Sept 2026: interest for April to September ₹8,100 is credited; payment = 90,000 + 8,100 + 8,100 = ₹1,06,200; balance c/d ₹90,000.

Answer: Interest on 31 March 2026: ₹8,100; payment on 30 September 2026: ₹1,06,200.

Example 4: Settlement and capitals readjusted on total capital · 6 marks · Long answerHarder board level

Arun, Bela and Chetan share profits 2:2:1. Chetan retires on 31 March 2026. Capitals: Arun ₹1,50,000, Bela ₹1,20,000, Chetan ₹70,000; General Reserve ₹40,000. Revaluation shows a profit of ₹25,000. Goodwill is valued at ₹1,00,000 and adjusted through capital accounts. Chetan is paid in cash. The total capital of the new firm is to be ₹2,80,000, held by Arun and Bela in their new ratio of 1:1, with surplus withdrawn and deficit brought in. Calculate the amount paid to Chetan and the cash adjustments of Arun and Bela. (6 marks)

Try it first, then show the solutionSolution

Gaining ratio: Arun 1/2 − 2/5 = 1/10; Bela 1/2 − 2/5 = 1/10; 1:1. Chetan's goodwill = 1,00,000 × 1/5 = ₹20,000, debited ₹10,000 each to Arun and Bela.
Reserve 16,000 : 16,000 : 8,000; revaluation 10,000 : 10,000 : 5,000.
Chetan = 70,000 + 8,000 + 5,000 + 20,000 = ₹1,03,000, paid in cash.
Arun = 1,50,000 + 16,000 + 10,000 − 10,000 = ₹1,66,000; Bela = 1,20,000 + 16,000 + 10,000 − 10,000 = ₹1,36,000.
Required ₹1,40,000 each: Arun withdraws ₹26,000; Bela brings ₹4,000.

Answer: Chetan is paid ₹1,03,000. Arun withdraws ₹26,000 and Bela brings in ₹4,000, leaving each with ₹1,40,000.

Example 5: Continuing partners bring cash with a minimum bank balance · 6 marks · Long answerHOTS / competency

Dev, Esha and Farhan share profits 4:3:2. Esha retires. After all adjustments the capitals are Dev ₹1,10,000, Esha ₹82,000 and Farhan ₹41,000, and the bank balance is ₹36,000. Dev and Farhan will share profits 2:1 in future. They are to bring enough cash to pay Esha in full and leave a bank balance of ₹25,000, so that their capitals end up in the new ratio. Show the gaining ratio and the cash each brings. (6 marks)

Try it first, then show the solutionSolution

Gaining ratio: Dev 2/3 − 4/9 = 2/9; Farhan 1/3 − 2/9 = 1/9; 2:1.
Cash needed = 82,000 + 25,000 − 36,000 = ₹71,000.
New total capital = 1,10,000 + 41,000 + 71,000 = ₹2,22,000.
In 2:1: Dev ₹1,48,000; Farhan ₹74,000.
Dev brings 1,48,000 − 1,10,000 = ₹38,000; Farhan brings 74,000 − 41,000 = ₹33,000; total ₹71,000.

Answer: Gaining ratio 2:1. Dev brings ₹38,000 and Farhan ₹33,000; Esha is paid ₹82,000 and ₹25,000 stays in the bank.

Example 6: Finding hidden goodwill · 3 marks · Short answerHOTS / competency

Gita, who has a one-fourth share, retires. Her capital after all adjustments except goodwill is ₹1,12,000, and the continuing partners pay her ₹1,30,000 in full settlement. Find her share of goodwill and the firm's goodwill, and state the entry. (3 marks)

Try it first, then show the solutionSolution

Excess paid = 1,30,000 − 1,12,000 = ₹18,000: her share of goodwill.
Firm's goodwill = 18,000 ÷ 1/4 = ₹72,000.
Entry: Continuing Partners' Capital A/cs Dr 18,000 (gaining ratio); To Gita's Capital A/c 18,000.

Answer: Gita's share of goodwill ₹18,000; firm's goodwill ₹72,000.

Where students lose marks in Amount Due to a Retiring Partner

The slips examiners see most often, and what to write instead.

Mistake: Crediting the loan with the whole amount due
Forgetting the part paid at once.
Wrong working
Priya's Loan A/c Cr 2,40,000
Right working
Priya's Loan A/c Cr 1,80,000 (after ₹60,000 paid)
Do this: Only the unpaid part becomes a loan; ISC examiners in 2024 flagged this error.
Usually costs: 1-2 marks.
Mistake: Reversing the goodwill entry
Debiting the retiring partner instead of crediting him.
Wrong working
Esha's Capital Dr; To Dev's and Farhan's Capitals
Right working
Dev's and Farhan's Capitals Dr; To Esha's Capital
Do this: The leaver is compensated, so he is credited; examiners in 2025 noted reversed entries.
Usually costs: 1-2 marks.
Mistake: Crediting a revaluation loss
Treating every revaluation item as a gain.
Wrong working
By Revaluation (loss) 2,000
Right working
To Revaluation (loss) 2,000
Do this: A loss reduces capital: debit side.
Usually costs: 1 mark.
Mistake: Loan account without dates
Writing amounts only.
Wrong working
To Bank 1,06,200 | By Interest 8,100
Right working
2026 Sept 30: To Bank 1,06,200 | 2026 Sept 30: By Interest 8,100
Do this: Interest depends on dates; ISC examiners in 2024 asked for the date column to be used.
Usually costs: 1 mark.

Exam tips

Write the gaining ratio as a working note before the goodwill entry.
In a loan account, show interest accrued but not due on 31 March as a credit and carry down the total.
When continuing partners bring cash, show the cash needed as a working note: due + minimum balance − bank.
Label the closing entry 'By Balance c/d' or 'To Bank' / 'To Loan' clearly; examiners penalise missing labels.

Practice questions on Amount Due to a Retiring Partner

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
The amount due to a retiring partner which is not paid at once is transferred to:
(a) his Loan Account
(b) Realisation Account
(c) Revaluation Account
(d) Profit and Loss Appropriation Account
Hint
It becomes a liability of the firm.
Answer
(a) his Loan Account
Q2 · 1 mark · MCQBoard level
On the Balance Sheet date, interest on a retiring partner's loan that has accrued but is not yet payable is:
(a) paid in cash
(b) credited to his Loan A/c and carried down
(c) debited to his Loan A/c
(d) ignored until it is paid
Hint
It is owed, even if not yet payable.
Answer
(b) credited to his Loan A/c and carried down
Q3 · 3 marks · Short answerBoard level
A retiring partner's capital is ₹82,000. His share of General Reserve is ₹7,500, of revaluation loss ₹3,200 and of goodwill ₹15,000. His drawings are ₹6,800. Calculate the amount due to him. (3 marks)
Hint
Revaluation loss and drawings are deducted.
Answer
82,000 + 7,500 − 3,200 + 15,000 − 6,800 = ₹94,500.
Q4 · 3 marks · Short answerHarder board level
A retiring partner's balance of ₹1,08,000 is transferred to his Loan A/c on 1 January 2026, with interest at 9% p.a. The books close on 31 March. Calculate the interest credited on 31 March 2026 and the balance carried down. (3 marks)
Hint
Three months.
Answer
Interest = 1,08,000 × 9% × 3/12 = ₹2,430; balance c/d ₹1,10,430.
Q5 · 3 marks · Short answerHarder board level
A partner retires on 30 June; the books close on 31 March. His capital is ₹1,60,000 with interest at 7.5% p.a.; his salary is ₹3,000 a month; his share of profit is one-fourth, estimated on last year's profit of ₹2,80,000. Calculate the total credited to his capital for the period, and name the account debited for his profit share if the other partners' ratio does not change. (3 marks)
Hint
Three months for all three items.
Answer
Interest ₹3,000 + salary ₹9,000 + profit 2,80,000 × 3/12 × 1/4 = ₹17,500; total ₹29,500. Profit share: Profit and Loss Suspense A/c Dr.
Q6 · 6 marks · Long answerHarder board level
After a retirement, Hema and Ishaan continue in the ratio 3:2. Their capitals after all adjustments are Hema ₹1,38,000 and Ishaan ₹1,12,000. The total capital of the new firm is to stay at ₹2,50,000 in the new ratio. Calculate the amount each brings in or withdraws. (6 marks)
Hint
Required capitals ₹1,50,000 and ₹1,00,000.
Answer
Hema brings in ₹12,000; Ishaan withdraws ₹12,000.
Q7 · 1 mark · Assertion-reasonHarder board level
Assertion (A): A retiring partner's share of goodwill is debited to the capital accounts of the gaining partners.
Reason (R): The gaining partners acquire his share of future profits.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Who benefits pays.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q8 · 6 marks · Long answerHarder board level
₹1,50,000 due to a retiring partner on 1 April 2025 is to be paid in three equal annual instalments of principal on 31 March each year, with interest at 10% p.a. on the unpaid balance. Calculate each payment and the total paid. (6 marks)
Hint
Interest on 1,50,000, then 1,00,000, then 50,000.
Answer
2026: 50,000 + 15,000 = ₹65,000; 2027: 50,000 + 10,000 = ₹60,000; 2028: 50,000 + 5,000 = ₹55,000. Total ₹1,80,000.
Q9 · 6 marks · Long answerHOTS / competency
Kavi, Laxmi and Jay share profits 5:3:2. Jay retires and Kavi and Laxmi will share 2:1. The firm's goodwill is ₹90,000. Calculate the gaining ratio and pass the goodwill entry. (6 marks)
Hint
Do not assume the gain is in the old ratio.
Answer
Kavi gains 2/3 − 5/10 = 1/6; Laxmi gains 1/3 − 3/10 = 1/30; gaining ratio 5:1. Jay's share = ₹18,000. Kavi's Capital Dr 15,000; Laxmi's Capital Dr 3,000; To Jay's Capital 18,000.
Q10 · 3 marks · Short answerHOTS / competency
₹80,000 is due to a retiring partner. The bank balance is ₹22,000 and a minimum balance of ₹15,000 must be kept. The continuing partners agree to bring the shortfall in their new ratio of 4:1. Calculate the cash each brings. (3 marks)
Hint
Due + minimum − available.
Answer
Shortfall = 80,000 + 15,000 − 22,000 = ₹73,000: ₹58,400 and ₹14,600.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Is his share of a Profit and Loss debit balance added to or deducted from the amount due?Show answer
Deducted.
2.Who is debited with the retiring partner's share of goodwill?Show answer
The gaining partners, in the gaining ratio.
3.Paid ₹50,000; capital after adjustments ₹44,000; share 1/5: firm's goodwill?Show answer
₹30,000.
4.Interest accrued and due on an instalment date: credited and then?Show answer
Paid with the instalment.
5.Is Joint Life Policy in the ISC syllabus?Show answer
No, it is excluded.

Amount Due to a Retiring Partner: frequently asked questions

Is interest on a retiring partner's loan an appropriation of profit?

No. Once his balance is a loan, he is a creditor, so the interest is a charge against profit.

Can a retiring partner be paid partly in cash and partly by loan?

Yes. Debit his capital with the full balance, credit Bank for the part paid and his Loan A/c for the rest.

What if the continuing partners' new ratio is not given?

They take over the retiring partner's share in their old ratio, so the new ratio is the old ratio between them, and the gaining ratio is the same.

Where does his share of profit to the date of retirement come from?

It is estimated on time or turnover and debited to Profit and Loss Suspense A/c if the others' ratio is unchanged, or to the gaining partners if it changes.