Learn On Your Own Accounting Entries For Propotionate Capital Contribution:

On retirement or death of a partner it becomes necessary to prepare a revaluation account and transfer its profit or loss all partners including the retiring partner in their profit sharing ratio. The value of goodwill should also be adjusted and general reserves (if any) in the profit and loss account should be distributed to all partners including the retiring partner in their profit sharing ratio.

Deferred revenue expenditures (if any in the balance sheet) should also be paid by debiting all Partners Capital Account.

On retirement or death of a partner, the continuing partners decide to pay off the deceased or retiring partner by bringing additional required cash. Propotionate capital contribution is the process under which the amount payable to the deceased or retiring partner is to be brought in by the continuing partner in such a way as to make their capital proportionate to their new profit sharing ratio. It means that the existing capital of the firm will remain untouched and will not be reduced even after the retirement of the partner.

A retires and after his retirement, the amount to be paid to A is to be brought in by B and C. this means that the amount of A share of capital is to be added to the proportionate capital of the firm because the continuing partners have decided not to withdraw capital to pay off A but will contribute in the ratio of 3:2.

Suppose, the total capital account of a partnership firm is Rs 9,00,000 where

A Rs.4,50,000,

B 3,50,000 and

C 1,00,000.

Now, future capital of

B: 9,00,000 X 3/5 = Rs.5,40,0000 and

C: 9,00,000 X 2/5 =Rs.3,60,0000 respectively.

Therefore amount to be brought in by:

B = 5,40,000-4,50,000 = Rs.1,90,000 and by

C = 3,60,000-1,00,000 = Rs.2,60,000.

Thus we find that B and C is to bring in Rs (190000+260000) = Rs 450000 to be paid to A

Thus the amount brought by B and C is proportionate to their profit sharing ratio and is also equal to the amount of Rs.4,50,0000 which will be required to pay off to A the retiring partner.