Retirement of Rahim and the Joint Life Policy:

Background Information:
In the old balance sheet of the partnership, there is no mention of a joint life policy. However, in the additional information provided, it is stated that there is a joint life policy with a value of ₹40,000. The surrender value of this policy on January 1, 2018, is ₹16,000. It is mentioned that the joint life policy is not raised in the books.

Explanation:
When a partner retires from a partnership, the accounting treatment involves settling their capital, share of profits/losses, and any other relevant assets or liabilities. In this case, Rahim retired on January 1, 2018.

Joint Life Policy:
1. The joint life policy with a value of ₹40,000 is an asset of the partnership. However, since it was not mentioned in the old balance sheet, it means that the partnership did not recognize it as an asset previously.
2. The surrender value of the policy on January 1, 2018, is ₹16,000. This surrender value represents the amount that can be obtained by canceling the policy before its maturity date. It is the cash value of the policy at that point in time.

Accounting Treatment:
1. The first step is to recognize the joint life policy as an asset in the partnership's books. Since it was not raised in the books previously, it needs to be recorded at its surrender value of ₹16,000.
2. The journal entry to record the recognition of the joint life policy would be as follows:
- Joint Life Policy (Asset) Dr. ₹16,000
To Surrender Value (Income) ₹16,000
3. Next, the retirement of Rahim needs to be accounted for. His capital, share of profits/losses, and any other relevant adjustments should be made.
4. Assuming there are no other adjustments or liabilities related to Rahim's retirement, the journal entry to close his capital account would be as follows:
- Rahim's Capital Account Dr. (With his capital balance)
To Partner's Capital Account (With Rahim's capital balance)
5. The remaining partners' capital accounts will be adjusted accordingly to reflect the new profit sharing ratio, if applicable.

Conclusion:
In the retirement of Rahim, the joint life policy with a surrender value of ₹16,000 is recognized as an asset in the partnership's books. Rahim's retirement is accounted for by adjusting his capital account and making necessary adjustments to the remaining partners' capital accounts.

Rs.16000 will be distributed among all the partners in their old profit sharing ratio.