Question

A, B and C are the partners sharing profits and losses in the ratio of $5:3:2$, took a joint life policy of Rs. $30,000$. On the death of B what amount will be payable to each partner will be ____________.

• A. A- Rs. $22,000$ and B- Rs. $8,000$
• B. A- Rs. $14,000$ and B- Rs. $16,000$
• C. A- Rs. $15,000$, B- Rs. $9,000$ and C- Rs. $6,000$
• D. A- Rs. $10,000$, B- Rs. $8,000$ and C- Rs. $10,000$

Answer 1

The correct option is C A- Rs. $15,000$, B- Rs. $9,000$ and C- Rs. $6,000$

A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all the partners. The amount of policy is payable by the Insurance Company either on the death or on maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy. Joint Life Policy will be an asset of the firm and deceased partner has a right to share any profit or loss on such policy. So, any claim which is received by the firm on the death of a partner is divided among the partners and credited to their capital accounts in their profit sharing ratio.

In the given question, accounting treatment of joint life policy on the death of B are as follows:

1. Policy value received from the insurance company on B's death

Bank A/c Dr. 30000

To joint life policy A/c 30000

2. Distribution of policy amount received in partners' profit sharing ratio

Joint life policy A/c Dr. 30000

To A's capital 15000

To B's capital 9000

To C's capital 6000