On the death of a
partner, the amount payable to him is to be paid to his legal representatives
Ø Following amounts will be his capital account:
1) The amount standing to the credit of his
capital A/c.
2) His share of the increase in the value of
goodwill of the firm.
3) Interest on capital, if provided in the
partnership deed.
4) His share of profit on the revaluation of
assets and liabilities.
5) His share of undistributed profits or reserves.
6) His share of life policy.
7) His share of profit upto the date of his
death.
Ø Following amounts will be debited to the
account of the deceased partner for ascertaining the amount due to his legal
representatives:
1) Drawings.
2) Interest on drawings.
3) His share of loss on the revaluation of assets
and liabilities.
4) His share of undistributed loss, such as debit
balance of profit and loss A/c.
5) His share of the reduction in the value of
goodwill.
Calculation of profit : If the
death of a partner occurs on any day during the year , the executors of the
deceased partner will also be entitled to the share of profits earned by the
firm from the beginning of the year till the date of his death.
Ø Two methods to ascertain profit:
A) On Time Basis: In this method , we have to take into consideration the
profit of the last year and the time for which he remained a partner during the
current year.
Firm’s
Profit = Average Profit X Number of months
12
Share
of deceased person in profit = Firms profit X Share of deceased person
B) On Turnover
or sales Basis:
= Profit of pervious year/Sales of previous year X Sales of current year
Individual life policy:
- Instead of taking
only one joint life policy, the firm may take individual policies on the lives
of partners.
Ø Accounting Treatment :
(1) When surrender values are not appearing in the books,
· For amount received from the insurance company
on maturity or death of a partner
Insurance
company A/c Dr.
To
life policy A/c
Life
policy A/c
Dr.
To
All partners capital
A/c (in
old ratio)
· For recording the deceased partners share in
the surrender value of surviving partners policies,
Surviving partner’s
capital A/c Dr.(in gaining ratio)
To
Deceased partner’s capital A/c
(2) When surrender values are already appearing in
the books,
· For amount received from the insurance company
on maturity or death of a partner,
Insurance
company A/c Dr.
To life policy A/c
Life policy
A/c
Dr. (amount received
minus surrender value
Appearing in the balance sheet)
To All
partners capital A/c (in old ratio)
Entry
for recording the surrender value of surviving partner’s policies will not be
passed in this case since they are already appearing in the balance
sheet.
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