According to piecemeal distribution of cash, partners whose capitals are more than proportionate to other partner's capital should first be refunded to bring down their capitals to proportionate levels. After that amount left unpaid be shared in profit sharing ratio. In this, X and Y share profits and losses equally. So their capitals should also be equal. To make capital equal X will be paid first. So Rs. 5000 will be paid to X. 

Partnership - The relation between persons who have agrred to share the profit of a business carried on by all or any of them acting for all is known as partnership. 

A partnership is a contract between the partners. Hence a minor cannot be a partner in a partnership firm. However, according to the Partnership Act, a minor may be admitted to the benefits of a partnership. So while the minor will not be a partner he will enjoy all the benefits of a partnership.

At the time of dissolution, all the assets are transferred to realisation account. Journal entry is:
Realisation A/c Dr. 
    To assets A/c 
When assets are sold, entry is:   
Bank A/c Dr. 
    To Realisation A/c
Because bank balance increased.

Journal Entry for settlement to Retiring Partner against Loan:

Cash is a real account. Rule for the real account is as under:

The following adjustments are necessary at the time of final payment to retiring partner:

1. Transfer of reserves

2. Transfer of goodwill

3. Transfer of profit and loss on revaluation
After the adjustment of the above mentioned items, the capital account balance standing to the credit of the retiring partner represents amount to be paid to him.

The continuing partners may discharge the whole claim at the time of retirement. Then the journal entry will be as follows:

Retiring Partner's capital A/c                Dr.

             To Bank A/c

Sometimes the retiring partner agrees to retain some portion of his claim in the partnership as loan. The journal entry will be as follows:

 Retiring Partner's Capital A/c              Dr.

               To Retiring Partner's Loan A/c

               To Bank A/c

Revaluation account is an account prepare at the time of retirement or death of a partner. In this account, increase in value of assets or decrease in liabilities is recorded at credit side and decrease in value of asset and increase in liabilities recorded at debit side. Difference between both sides is calculated and transfer to partner's capital account.

A partnership deed is a written legal document to avoid unnecessary misunderstanding, harassment and unpleasantness among the partners in the event of any dispute.

Partners can make or insert clauses in their partnership deed.

In case if partner does not make agreement or deed, then partners are entitled for interest on loans and advances and their profit sharing ratio will be equal. They are not entitled for salary and commission.

At the time of the death of a partner, firm gets reconstituted. In reconstitution assets and liabilities are revalued, and the resultant  profit and loss has to be transferred to the capital accounts of all partners after including the deceased partner. Value of goodwill is raised and surrender value of joint life policy, if any, is taken into account. After ascertaining the amount due to the deceased partner, it should be transfer to his capital account and from there transfer to his executor's account.

The partnership capital account is an equity account in the accounting records of a partnership. It

contains the following types of transactions:

1.  Initial and subsequent contributions by partners to the partnership, in the form of either cash or the market value of other types of assets.

2. Profits and losses earned by the business, and allocated to the partners based on the provisions of the partnership agreement.

3. Distributions to the partners.

The ending balance in the account is the undistributed balance to the partners as of the current date.   

Partner's capital account can either have a credit balance or debit balance.

A capital account having a credit balance means business owes partners that much amount, while if a capital account has a debit balance it means partners owe business that much amount or we can also say that partners have overdrawn their capital account.

In the absence of partnership deed, no interest on capital is provided. Interest on loan is calculated at 6%. Interest On loan at 6% will be 4800 Rs. Remaining 1200 Rs. will be distributed equally among partners 400 Rs. to each partner. Share of X and Z will be 400 Rs. and share of Y will be 400+ 4800(interest on loan) = 5200 Rs.

Consignee acts as agent who undertakes to sell the goods of consignor. Consignment occurs when goods are sent by the consignor to consignee. consignor continues  to own the goods until they are sold. 

• When a partner enter into partnership he/she is required to bring his share of capital in the firm. 

• Capital account of each partner represents his equity in the partnership.

  Capital account of a partner is increased in the following situations:

  • The owner made additional investments during the year.
  • The owner made guaranteed payments to the firm.
  • Partnership earned profits, and a share of profits was allocated to the partner.

  The increase in the capital will record in credit side of the capital account.

  Salary and interest allowances are guaranteed payments, discussed later.

  Capital account of a partner is decreased when the owner makes withdrawals of cash or property

• Journal entry for excess capital withdrawn by the partner is

•      Partner's Capital A/c                Dr. 

C’s share of profit = 1/5, to be taken by A and B equally.

A gains = 1/5 X 1/2 = 1/10

B gains = 1/5 X 1/2 = 1/10

New share of A = 2/5 + 1/10 = 4/10 + 1/10 = 5/10 = 1/2

New share of B = 2/5 + 1/10 = 4/10 + 1/10 = 5/10 = 1/2

New profit sharing ratio of A and B = 1:1