Adjustment of Accumulated Profit and Losses

Introduction:
When a partner retires from a partnership, the partnership firm needs to make certain adjustments to the books of accounts. These adjustments include adjustments for accumulated profits and losses, goodwill, and reserves.

Accumulated Profits and Losses:
When a partner retires, the partnership firm needs to adjust the accumulated profits or losses in the books of accounts. The accumulated profits or losses are the undistributed profits or losses of the partnership firm. These are apportioned among the remaining partners in their profit-sharing ratio. In this case, D's share of accumulated profits or losses will be apportioned among A, B, and C in their profit-sharing ratio of 1:2:3.

Goodwill:
The value of goodwill is calculated as the difference between the total value of the firm and the value of its net assets. Goodwill is an intangible asset that represents the reputation of the firm in the market. When a partner retires, the value of goodwill needs to be revalued. In this case, the value of goodwill was calculated as three years' purchase of the average profits, which were 20,000. The value of goodwill will be adjusted in the books of accounts by crediting the retiring partner's capital account and debiting the remaining partners' capital accounts in their profit-sharing ratio.

Reserves:
The partnership firm may have certain reserves such as general reserve, capital reserve, etc. When a partner retires, the reserves in the books of accounts need to be adjusted. In this case, the general reserve showed a balance of 65,000 at the time of D's retirement. The general reserve will be adjusted by debiting the retiring partner's capital account and crediting the remaining partners' capital accounts in their profit-sharing ratio.

Conclusion:
In conclusion, when a partner retires from a partnership, the partnership firm needs to make certain adjustments to the books of accounts. These adjustments include adjustments for accumulated profits and losses, goodwill, and reserves. The adjustments are made to ensure that the books of accounts reflect the true and fair view of the partnership firm's financial position.