Question

X,Y and Z are three partners in a firm. Y died on 1st January.The firm had taken a life policy of Rs.18,000 at an annual premium of Rs.700. On the date of death of Y the JLP appears a Rs 1800. The Policy was duly received. How the profit on JLP will be distributed?

• A. Dr. Cash $Rs.10,000$, Dr. XYZ $Rs.3333.33$, Cr. JLP $Rs.20,000$.
• B. Dr. Cash $Rs.20,000$ Cr. JLP $Rs.20,000$.
• C. Dr. JLP $Rs.16,200$, Cr. XYZ $Rs.5400$ each.
• D. Dr. JLP $Rs.18,000$, Cr. profit and loss A/c $Rs.8,000$.

Answer 1

The correct option is C Dr. JLP $Rs.16,200$, Cr. XYZ $Rs.5400$ each.

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. 18000

To Joint life policy A/c 18000

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

(2) Joint Life policy A/c Dr. 16200

To X's capital A/c 5400

To Y's capital A/c 5400

To Z's capital A/c 5400

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. 18000

To X's capital A/c 6000

To Y's capital A/c 6000

To Z's capital A/c 6000