DEATH OF A PARTNER

CLASS – XII

ACCOUNTANCY
LEARNING OBJECTIVES:
⮚ I can understand the concept of Accounting on Death of a partner.

⮚ I can understand the calculation of New ratio and the Gaining ratio.

⮚ I can develop an understanding on the accounting treatment of goodwill.

⮚ I can revalue all assets and reassess all liabilities.

⮚ I can learn the adjustment of reserves, accumulated profits and losses.

⮚ I can calculate the share of profit or loss of deceased partner till the date of
death.
⮚ I can determine the amount due to the deceased partner.

⮚ I can prepare the executor’s account of the deceased partner to settle the
amount due to deceased partner.
⮚ I can understand to prepare the Deceased partner’s capital Account and the
executor’s account.
DIFFERENCE BETWEEN RETIREMENT AND DEATH

The accounting treatment in the event of death of a partner is similar to that in case
of retirement of a partner. The basic differences between the two situations are:
(a) That the retirement of a partner may be planned to be effective from a particular
date whereas the death of a partner may occur any time during the year.
(b) Amount payable to the retiring partner is transferred to his loan account. On
death, the amount due to the deceased partner is transferred to his Executor’s
Account.
CALCULATIO New profit share = Old share of existing partners
+ Profit share taken of deceased partner

N OF NEW Question :

PROFIT-
(A) W, X, Y and Z are partners sharing
profits and losses in the ratio of 1/3,

SHARING 1/6, 1/3 and 1/6 respectively. Y died and

W, X and Z decide to share the profits

RATIO and losses equally in future. Calculate

the gaining ratio.
(B) A, B and C are partners sharing profits
and losses in the ratio of 4:3:2. C died.
A takes 4/9 of C’s share and balance is
taken by B. Calculate the new profit-
sharing ratio and the gaining ratio.
ACCOUNTING OF GOODWILL
The deceased partner is entitled to his share of goodwill because goodwill was earned by the firm when he
was a partner.

Gaining partners will compensate the deceased partner by paying goodwill in their gaining ratio.

Deceased Partner’s share of goodwill = Value of firm’s goodwill * Profit share of deceased partner

Journal entry :

Gaining Partner’s capital A/c Dr. (In Gaining ratio)

To Deceased Partner’s capital A/c. (with the share of goodwill)

(Adjustment made for goodwill at the time of death of a partner)

DO IT:

Illustration no. 1
(Page no. 7.3)
REVALUATION
OF ASSETS Deceased partner is entitled to
AND his share of gain that has risen
REASSESSMEN
T OF
up to the date of death. He will
LIABILITIES also bear the loss that may
have been incurred up to the
date of death.
His share in the gain or loss on
revaluation of assets and
reassessment of liabilities is
credited or debited to his
capital account.
ASCERTAINMENT OF DECEASED PARTNER’S SHARE OF PROFIT AND LOSS UP TO THE DATE OF DEATH

Where the death occurs on the last date of the financial year, determination of profit or loss of the
firm is not a problem. But, where the death takes place during the course of an accounting year, the actual
profit obtained or loss incurred from the last Balance sheet to the date of death is to be
ascertained.
Generally, it may be ascertained
(i) On the basis of last year’s profit (Illustration 6,7)
(ii) On the basis of the average profit of a certain number of year’s (Illustration 8)
(iii) On the basis of sales(Illustration 10,11)
Such derived amount is only an estimate. Hence the journal entry for the same would be:
IF THE PROFIT-SHARING RATIO DOESNOT CHANGE

IN CASE OF PROFIT:

Profit and Loss Suspense A/c----- Dr.

To Deceased Partner’s Capital A/c
(Being deceased partner’s share of profit up to the date of death)

Note: In this case, Profit and Loss Suspense A/c will show debit balance. At the
end of the year it will be closed by transferring it to P & L Appropriation Account.
Until the date, it will appear on the asset side of the Balance sheet
IN CASE OF LOSS:

Deceased Partner’s Capital A/c. Dr

To Profit and Loss Suspense A/c
(Being deceased partner’s share of Loss up to the date of death)

Note: In this case, Profit and Loss Suspense A/c will show credit balance. At the
end of the year it will be closed by transferring it to P & L appropriation Account.
Until the date, it will appear on the Liability side of the Balance sheet.
WHEN THE PROFIT-SHARING RATIO OF THE REMAINING PARTNERS CHANGES:
For share of profit
Profit and loss suspense A/c Dr.
To Deceased partner’s capital A/c
_____________________________________
Gaining Partners capital A/c Dr.
To Profit and loss suspense A/c
Alternatively,
Gaining Partner’s capital A/c Dr.
To Deceased partner’s capital A/c
For share of Loss
Deceased partner’s capital A/c Dr.
To Profit and loss suspense A/c
______________________________________
Profit and loss suspense A/c. Dr.
To Gaining Partner’s capital A/c
Alternatively,
Deceased partner’s capital A/c. Dr.
To Gaining Partner’s capital A/c
WHEN SHARE OF PROFIT OR LOSS IS
DETERMINED BY PREPARING FINAL ACCOUNTS

Profit & Loss Appropriation A/c Dr.

To Partner’s capital A/c