what is profit and loss suspense account and how it is treated in partners capital account and balance sheet? chapter: death/retirement of a partner.

Question

what is profit and loss suspense account and how it is treated in partners capital account and balance sheet?  chapter: death/retirement of a partner.

Answer

It is account is made when any partner died between the accounting year.
it's debited to death partner account and it is shown in assets side of the balance sheet . and one special things is that it is created when remaining partner doesn't change their profit sharing ratio.

Answer

Profit and Loss Suspense Account

Profit and Loss Suspense Account is a temporary account which is used to record the difference between the actual profit or loss and the profit or loss distributed to the partners. This account is opened when the final accounts of the partnership firm cannot be prepared due to some reason like death or retirement of a partner.

Treatment in Partners Capital Account

When the final profit or loss is ascertained, the amount is transferred to the Profit and Loss Suspense Account.

If the final profit is more than the distributed profit, the additional profit is credited to the Profit and Loss Suspense Account.

If the final profit is less than the distributed profit, the additional loss is debited to the Profit and Loss Suspense Account.

After the transfer, the balance in the Profit and Loss Suspense Account is transferred to the partners' capital accounts in the profit sharing ratio.

Treatment in Balance Sheet

The balance in the Profit and Loss Suspense Account is shown on the liabilities side of the balance sheet.

If the balance is a credit balance, it is shown as 'Profit and Loss Suspense Account' and if it is a debit balance, it is shown as 'Loss and Profit Suspense Account'.

Death/Retirement of a Partner

When a partner dies or retires, the partnership firm is dissolved. The assets are sold, liabilities are paid off, and the remaining amount is distributed among the partners. The following steps are taken:

Calculate the value of the goodwill or revaluation of assets and liabilities.

Calculate the share of the deceased/retired partner in the profits up to the date of death/retirement.

Adjust the partner's capital account for the above amounts.

Prepare the final accounts of the partnership firm.

Transfer the balance in the Profit and Loss Suspense Account to the partner's capital account.

Distribute the assets among the partners in their profit sharing ratio.

Similar Class 12 Doubts

If a firm prefers Partners Capital Accounts to be shown at the amount introduced by the partners as capital in firm then, the entries for salary, drawings, interest on capital or drawings and profits are made in

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