Question

ABC are three partners in a partnership firm.They took a joint life policy of Rs.24,000 at an annual premium of Rs.1500 p.a. C dies on 15th April . On the date of death of B Joint life policy appeared in the books of firm at Rs. 3000. The policy amount of Rs.24,000 was received at the time of C. What amount will be transferred to the partners capital account for treatments of JLP?

• A. Dr JLP $Rs.21,000$, Cr. A,B and C's Capital A/c $Rs.7000$.
• B. Dr JLP $Rs.18,000$, Cr. A,B and C's Capital A/c $Rs.6000$.
• C. Dr JLP $Rs.3,000$, Cr. A,B,C's Capital A/c $Rs.1000$.
• D. Dr JLP $Rs.24,000$, Cr. A,B and C's Capital A/c $Rs.8000$.

Answer 1

Answer: (A)

Dr JLP $Rs.21,000$, Cr. A,B and C's Capital A/c $Rs.7000$.

A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all partners. The amount of policy is payable by the insurance company either on the death or maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy.

If joint life policy is appeared in balance sheet, Accounting treatment of joint life policy on the death of a partner is:

(1) Bank A/c Dr. 24000

To Joint life policy A/c 24000

(Policy value received from the insurance company on C's death)

(2) Joint Life policy A/c Dr. 21000

To A's capital A/c 7000

To B's capital A/c 7000

To C's capital A/c 7000

However, if joint life policy does not appear in balance sheet, then the entry (2) is to be passed for Rs. 24000 and it would be appear as follows:

Joint Life policy A/c Dr. 24000

To A's capital A/c 8000

To B's capital A/c 8000

To C's capital A/c 8000