Settle a partner’s retirement and continuing partners’ accounts
Update goodwill, asset values and partner balances when a partner retires, then distinguish the amount due from its settlement.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These original lessons map all five Topic 3.1 objectives: financial-statement purpose; partnership changes; clubs and societies; manufacturing accounts; and limited-company financial statements and notes. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the Topic 1.5 adjustment and statement skills: apply accruals, distinguish capital from revenue, reconcile balances, and keep each entity's owners' funds separate from income and cash.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A retiring partner has a credit balance of $18,000, and the agreement defers payment. What is the immediate effect?
What you will learn
- Identify the continuing partners' gaining ratio
- Allocate goodwill and revaluation before retirement
- Calculate and settle the retiring partner's balance
Identify old shares, new shares and timing
For retirement, compare the continuing partners' old profit shares with the new shares after the retiring partner leaves. Their gains determine how they share any goodwill compensation due to the retiring partner. Record any agreed revaluation before settling the retiring account.
The retiring partner's final capital/current-account balance can include existing capital, accumulated current-account items, goodwill entitlement and revaluation allocations, less drawings or amounts owed. The partnership deed and question determine the exact treatment and settlement terms.
Do not confuse an amount due with cash paid
If the partnership pays immediately, reduce cash and clear the retiring partner's account. If payment is deferred under agreed terms, transfer the balance to a loan or other payable account as instructed. A liability remains until settled.
A direct goodwill adjustment or an account that is later written off can produce different ledger presentation. Follow the specified method and reconcile the continuing partners' balances and the statement of financial position.
Pause and explain
A and B continue at 3:2 after C retires. Which amount is most relevant for sharing a goodwill debit between A and B?
Worked example
A, B and C share profit 5:3:2. A retires; B and C share future profits 2:1. Goodwill is $30,000 and the adjustment is direct. Calculate A's goodwill credit and B/C debits.
Show the worked solution
- A's old share is 5/10 = 1/2, so the retiring partner's goodwill entitlement is $15,000.
- B gains 2/3 − 3/10 = 11/30; C gains 1/3 − 2/10 = 2/15. Their relative gains are 11:4.
- Debit B $11,000 and C $4,000; credit A $15,000.
Answer Credit A $15,000, debit B $11,000 and debit C $4,000. The credit increases the amount due to A; cash payment is a separate step.
Try a topic test
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Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A, B and C share 3:2:1. C retires and A/B continue 1:1. Goodwill is $20,000. Show the net goodwill adjustments using the old ratio to raise goodwill and the new ratio to write it off.
Give me a hint
Credit all old partners in the old ratio, then debit continuing partners in their new ratio.
Compare my reasoning
- Raise goodwill: credit A $10,000, B $6,666.67 and C $3,333.33 in the old 3:2:1 ratio.
- Write goodwill off: debit A and B $10,000 each in the new 1:1 ratio.
- Net: A has no change; debit B $3,333.33 and credit C $3,333.33, with rounding adjusted so entries balance.
The net direct adjustment is a $3,333.33 debit to B and credit to C; A's old-ratio credit and new-ratio debit cancel. This gives C the retiring goodwill share and allocates the balance consistently with both ratios.
Look for these in your work
- Old ratio used to raise goodwill
- New ratio used to write it off
- Net balances reconciled
A, B and C share 4:3:1. B retires and A/C continue 3:1. Goodwill is $24,000. Find B's goodwill share and the continuing partners' relative gain ratio.
Give me a hint
Keep the amount allocated to B separate from who bears it.
Compare my reasoning
- B's old share is 3/8, so B's goodwill entitlement is $24,000 × 3/8 = $9,000.
- A gains 3/4 − 4/8 = 1/4; C gains 1/4 − 1/8 = 1/8.
- A:C gaining ratio = 2:1; if they bear the $9,000 directly, debit A $6,000 and C $3,000, subject to the partnership agreement.
B's goodwill share is $9,000; A and C gain in the ratio 2:1 and would bear $6,000 and $3,000 under a direct adjustment, as directed by the agreement.
Look for these in your work
- Goodwill entitlement calculated
- Gain ratio calculated
- Method caveat stated
A retiring partner's account is $52,000 after goodwill and revaluation. The partnership agrees to pay $20,000 now and the rest in one year. Show the settlement logic and identify the closing liability.
Give me a hint
Clear only the amount actually paid and leave the remainder payable.
Compare my reasoning
- Opening amount due is $52,000.
- Pay $20,000 now: cash decreases $20,000 and the retiring partner's account is reduced by $20,000.
- Remaining balance = $52,000 − $20,000 = $32,000, recognised as a payable/partner loan under the agreed terms.
Cash paid is $20,000 and the remaining $32,000 is still a liability at the reporting date. Do not treat the deferred amount as settled.
Look for these in your work
- Cash movement correct
- Remaining balance correct
- Liability remains recognised
Common mistakes
- Paying the retiring partner's balance twice
- Ignoring a creditor balance when settlement is deferred
What can you explain now?
What ratio allocates a goodwill debit between continuing partners on retirement?
Compare with the explanation
Their relative gaining ratio
Calculate each continuing partner's increase from old to new share.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
When a partner retires, what two comparisons help determine goodwill entries for the retired and continuing partners?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.