Retirement/Death of a Partner> Adjustment of Capitals

\[\begin{aligned} & \text{Share in Profit =} \\ & \frac{\text{Outstanding Amount of Outgoing Partner}}{\text{Capital of all Partners}+\text{Balance of Outgoing Partner}}\times\text{Profit from the date of death of a partner till the date of next Balance Sheet} \\
\end{aligned}\]

A. When There Is a Surplus in Capital (More than Required Capital):

1. Surplus is Paid Back in Cash:

Continuing Partner's Capital A/c       ...Dr.

         To Cash / Bank A/c

2. Surplus is Not Paid but Transferred to Current or Loan A/c:

Continuing Partner's Capital A/c         ...Dr.

        To Continuing Partner's Current / Loan A/c

B. When There Is a Deficit in Capital (Less than Required Capital):

1. Partner Brings in Cash:

Cash / Bank A/c         ...Dr.

       To Continuing Partner's Capital A/c

2. Deficit is Adjusted Through Current or Loan A/c:

Continuing Partner’s Current / Loan A/c        ...Dr.

        To Continuing Partner's Capital A/c

Proportionate Capital of a Partner = Total Capital × Partner's New Profit Sharing Ratio

1.Surplus Capital = Adjusted Capital > Proportionate Capital

(Partner needs to withdraw excess or transfer to Current A/c)

2. Deficit Capital = Adjusted Capital < Proportionate Capital

(Partner needs to bring in cash or adjust from Current A/c)

1. When not given directly in the question:

Total Capital = Aggregate of Adjusted Capitals of Remaining Partners

2. When a Retiring Partner is paid by continuing partners:

Total Capital = Aggregate of adjusted capitals of remaining/continuing partners + Shortage of cash to be brought in by partners to pay the retiring partner