Question

The amount received from insurance company on the maturity of joint life policy is distributed amongst the partners ___________.

• A. in the profit sharing ratio
• B. in the ratio of capitals of partners
• C. Equally
• D. None of the above

Answer 1

The correct option is A in the profit sharing ratio

A partnership firm may decide to take a joint life insurance policy on the lives of all partners. The firm pays the premium and the amount of policy is payable to the firm on the death of any partner or maturity of the policy, whichever is earlier.

The said amount received is credited to all partner's capital account in their profit sharing ratio.

Journal entry for the above will be:

Insurance company / Bank account Dr.

To Partners' capital A/c (individually)