♦ The problems arising on the death of a partner are similar to those arising on retirement. Assets and liabilities have to be revalued and the resultant profit or loss has to be transferred to the Capital Accounts of all partners including the deceased partner. Goodwill is dealt with exactly in the way already discussed in the case of retirement.
♦ Treatment of joint life policy will also be same as in the case of retirement. However, in case of death of a partner, the firm would get the joint policy value. The only additional point is that as death may occur on any day, the representatives of the deceased partner will be entitled to the partner's share of profit from the beginning of the year to the date of death. After ascertaining the amount due to the deceased partner, it should be credited to his Executor's Account.
♦ If the death takes place during the accounting period, the Executor of the deceased partner is entitled to have a share of profit upto the date of death based on the profit earned in the immediately preceding year or some other agreed basis. For this purpose, the deceased partners' Capital Accounts is credited and Profit & Loss Suspense Account is debited.
Multiple Choice Questions
Ques 1: In the absence of proper agreement, representative of the deceased partner is entitled to the Dead partner's share in
(a) Profits till date, goodwill, joint life policy, share in revalued assets and liabilities.
(b) Capital, goodwill, joint life policy, interest on capital, share in revalued assets and liabilities.
(c) Capital, profits till date, goodwill, joint life policy, share in revalued assets and liabilities.
Ques 2: A, B and C are the partners sharing profits and losses in the ratio 2:1:1. Firm has a joint life policy of ₹ 1,20,000 and in the balance sheet it is appearing at the surrender value i.e. ₹ 20,000. On the death of A, how this JLP will be shared among the partners.
(a) ₹ 50,000: ₹ 25,000: ₹ 25,000.
(b) ₹ 60,000: ₹ 30,000: ₹ 30,000.
(c) ₹ 40,000: ₹ 35,000: ₹ 25,000.
Ques 3: R, J and D are the partners sharing profits in the ratio 7:5:4. D died on 30th June 2016. It was decided to value the goodwill on the basis of three year's purchase of last five years average profits. If the profits are ₹ 29,600; ₹ 28,700; ₹ 28,900; ₹ 24,000 and ₹ 26,800. What will be D's share of goodwill?
(a) ₹ 20,700.
(b) ₹ 27,600.
(c) ₹ 82,800.
Ques 4: R, J and D are the partners sharing profits in the ratio 7:5:4. D died on 30th June 2016 and profits for the accounting year 2015-2016 were ₹ 24,000. How much share in profits for the period 1st April 2016 to 30th June 2016 will be credited to D's Account.
(a) ₹ 6,000.
(b) ₹ 1,500.
(c) ₹ 2,000.
Ques 1: Explain distinction between retirement and death of a partner as relating to finalisation of amount payable.
Ans: The basic distinction between retirement and death of a partner relates to finalisation of amount payable to the Executor of the deceased partner. Although, revaluation of goodwill is done in the same way as it has been done in case of retirement, in addition, the executor of the deceased partner is entitled to share of profit upto the date of death.
Ques 2: What amount is payable to legal representatives of dead partner?
Ans: When the partner dies the amount payable to him/her is paid to his/her legal representatives. The representatives are entitled to the followings :
(a) The amount standing to the credit to the capital account of the deceased partner;
(b) Interest on capital, if provided in the partnership deed upto the date of death;
(c) Share of goodwill of the firm;
(d) Share of undistributed profit or reserves;
(e) Share of profit on the revaluation of assets and liabilities;
(f) Share of profit upto the date of death;
(g) Share of Joint Life Policy.