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Question

A, B & C takes a joint life policy, after 5 years B retires from the firm. Old profit sharing ratio is 2:2:1. After retirement A and C decides to share profits equally. They had taken a joint life policy of Rs.2,50,000 with the surrender value Rs.50,000. What will be the treatment in the partner's capital account on receiving the JLP amount if joint life policy premium is fully charged to revenue as and when paid?

A
Rs.50,000 credited to all the partners in old ratio.
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B
Rs.2,50,000 credited to all the partners in old ratio.
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C
Rs.2,00,000 credited to all the partners in old ratio.
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D
No treatment is required.
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Solution

The correct option is A Rs.50,000 credited to all the partners in old ratio.

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.

At the time of retirement of a partner, the firm get surrender value of policy in old profit sharing ratio.

In the given question policy value is Rs. 250000 and surrender value is Rs.50000. Therefore, surrender value i.e., Rs. 50000 is credited to all partner's capital A/c in their old ratio.


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