Payment of Amount Due to Retiring Partner: The amount payable is paid to the retiring partner as per procedure mentioned in the partnership deed. Normally one of the following methods can be used to pay the amount payable.

1. Lump-Sum Payment System : After making all adjustments, the balance in the capital accounts of retiring partner shows the amount payable to retiring partner or in case of death of partner to his legal heir. If the financial condition of the firm is strong, the payment can be made in lump sum cash or through bank. The following entry is passed for amount payable at the time of payment under this method.
Retiring Partner’s Capital A/c Dr.
To Cash /Bank A/c
(Being amount due to retiring partner paid)

2. Payment Partly in Cash and Partly by Transferring into Loan Account : At the time of payment under this method, the following entry is passed
Retiring Partner’s Capital A/c Dr.
To Cash A/c
To Retiring Partner’s Loan A/c
(Being retiring partner paid partly in cash and balance transfer to his loan account)

3. Payment by Installment: To make lump-sum payment, firm must have sufficient cash or bank balance. Generally, it is not considered prudent to withdraw large sums, therefore, installment payment system is considered more practical way of payment. Under this method, the balance in the capital account of the retiring or deceased partner is transferred to a loan account in his name and this amount is paid in predetermined installments. Interest is also paid on the balance amount as per mutual agreement. 

At the time of payment under this method, following journal entries are passed:
(i) On Transferring Amount Payable to Loan Account
Retiring Partner’s Capital A/c Dr.
To Retiring Partner’s Loan A/c
(Being retiring Partner’s Capital Account balance transfer to his loan account)

(ii) On Interest Falling Due
Interest A/c Dr.
To Retiring Partner’s Loan A/c
(Being for interest to his loan account).

(iii) On Payment of Installment
Retiring Partner’s Loan A/c Dr.
To Cash/Bank A/c
(Being installment Paid)

4. Payment by Annuity: Under this method, the partner retired is given an annuity (annual payment) of certain amount (to be ascertained from annuity tables) till he is alive or to the executor of a deceased partner till his life. This stipulated amount payable is called an Annuity. According to this method, the balance of capital account of a partner retired or deceased is transferred to annuity suspense account. This account is credited with a certain amount of interest at a specified rate. If the partner or the executor or deceased partner dies leaving a balance in this account, it is distributed among the remaining partner in their profit sharing ratio.

This account is credited every year beginning balance at a specified rate of interest. In case, the rate of interest is not given, in the question interest is applied at 6% per annul. The payment from this account is made till the death of retired partner. In case no balance is left in this account, the necessary amount is transferred to annuity account from profit and loss account.
Journal Entries
(i) On Transferring the Amount Payable to Annuity Account.
Retiring Partner’s Capital A/c Dr.
To Annuity Suspense A/c
(Being balance of retiring partner’s capital account transferred to annuity suspense account)

(ii) On Interest Falling Due Every Year on Annuity Account
Interest A/c Dr.
To Annuity Suspense A/c
(Being interest due)

(iii) On Yearly Payment of Annuity
Annuity Suspense A/c Dr.
To Bank/Cash A/c
(Being amount of annuity paid)

(iv) On Death of Retired Partner while there is Balance in Annuity Account
Annuity Suspense A/c Dr.
To Remaining Partner’s Capital A/c
(Being balance of annuity suspense account transferred to remaining partner’s capital account)

(v) If the retired partner survives beyond the balance in annuity account he will continue to receive annuity from firm till his survival. In this case following entry will be passed at the end of year apart from the entry at for accounting of annuity.
PL A/c Dr.
To Annuity Suspense A/c