Question

State whether the following statement is true or false with reasons.

Retiring partner’s share in profit up to the date of his retirement will be debited to Profit and Loss Suspense Account.

Options

• True

• False

Answer 1

This statement is true.

Explanation:

If a partner retires from the firm during the accounting year, the profit or loss for the period from the date of the last balance sheet to the date of retirement is calculated on the basis of last year’s profit or average profit, and it is credited to the retiring partner’s capital A/c, and for the time being it is debited to a new account called the Profit and Loss Suspense Account. This is because final accounts cannot be prepared on any date during the accounting year.