Explain the modes of payment to a retiring partner.

— Kishore V, SME and  ACW at Edumarz

The following methods of payment to the retiring partner are available: 

1. I) Lump Sum Payment Incomplete settlement, a lump sum payment can be provided to the retiring partner. The following journal entry will be passed in that situation.

(ii) Establishing a Loan Account: 

• The sum owed to the retiring partner is sometimes paid in instalments, and the balance number from his capital account is transferred to his loan account. 
• In this situation, the retiring partner receives equal monthly payments plus interest on the outstanding balance. 
• In that instance, the following journal entries will be passed to transfer the money paid to him/her into the loan account of the retiring partner.

(iii) Some payments are made in cash, while others are made in instalments. Sometimes the sum owed to the retiring partner is paid in cash and in equal instalments; in this instance, a portion of the money owing to him/her is paid in cash and the remainder is transferred to his/her loan account. The following is a required journal entry that must be completed.