Death Of A Partner

Reserves, Existing Goodwill, accumulated profits/losses appearing in the Balance Sheet of the firm at the time of death of a new partner belong to all partners including the retiring or deceased partner. Hence these should be distributed among all the partners in their old profit sharing ratio.

         To Goodwill A/c 

     To All Partners’ Capital A/c 

    To Profit & Loss A/c

   To All Partners’ Capital A/c

• Partners Capital Balance
• Existing goodwill
• Partner’s share in the present value of Firm’s Goodwill
• Revaluation Profit or Loss
• Reserves, Surplus and Fictitious Assets
• Drawings made by the partner
• Asset/Liability taken over by a partner
• Partner’s Loan given on Assets side or Liabilities side

• Salary/Commission to a Partner
• Interest on Capital
• Interest on Drawings
• Interest on Loan
• Share in current year’s Profits

• Accounting treatments at the time of Death of a Partner is an extension of the Retirement of a Partner. In the above-mentioned list, treatment of category ‘A’ items is exactly the same both for retirement & death. There will be no effect of date of death.
• But for the treatment of category ‘B’ items date of death plays a very important role.

• Monthly Salary x Time Period
• Commission as per the agreement for this period only (if any).

# Time Period = Period from the date of last Balance Sheet to the date of Death

{This period can be in months, weeks or days.}

• Capital Balance as per the last Balance Sheet x Rate of Int./100× Time Period/12

• We’ll use the rules of Interest on Drawings learned earlier and of course, keep in mind the ‘Time Period’.

• Amount of Loan as per the last Balance Sheet x Rate of Int./100× Time Period/12

• To compute the deceased partner’s share in estimated profits there are following two approaches/basis:
• Time Basis – Under this approach his profit share for the current year is computed on the basis of last year’s profit or last few years’ average profits.
• Formula:Last Year’s Profit × Time Period/12 × Deceased Partner’s Share

Or

Average Profits × Time Period/12 × Deceased Partner’s Share

• Turnover Basis– In this case, his profit share for the current year is estimated using last year’s sales and last year’s profits.
• Formula: Step 1. Compute Profits % of last year: Last Year’s Profit/Last Year’s Sales × 100

Step 2. Firm’s estimated profit till the date of death: Current Year’s Sales up to the date of death × Profit %

Step 3. Decease Partner’s share

Firm’s Profit as per Step 2 × Deceased Partner’s ratio

For F’s share in the profits of Current Year 2016-17, the profits should be taken to have accrued on the same scale as in the last year i.e. 2015-16 which was `1,00,000 and an addition of 10% over it will be made.

Profits of the last five years were as under:

2015-16 : 60,000;

2014-15 : 70,000;

2013-14 : (55,000);

2012-13 : 85,000;

2011-12 : 90,000.

Sales for the year ended 31^st March, 2016 amounted to `6,00,000. Sales for the period between 1<sup>st</sup> April, 2016 to 30<sup>th</sup> Sep., 2016 amounted to be `4,80,000. The profits for the year ended 31^st March, 2016 amounted to `1,50,000.

b. Accumulated profit & losses

c. Purchase expense

d. Both (a) & (b)

b. Debited

c. Not recorded

d. Distributed