Disposal of Amount Due to Retiring Partner: Joint Life Policy 2 Video Lecture | Accountancy Class 12 - Commerce

in case of a joint life policy the first
method is to create the policy premium
as an expense insurance premium is
simply treated as an expense of the
partnership form so each time we make a
payment we say insurance premium account
their bed joy and life policy premium
account debit to back with the amount of
premium paid this will be every year
and at the end of each year every year
we would close this account by transfer
to the profit and loss account so we do
not have any asset no asset nothing in
our books so what happens either on
surrender of the policy or on maturity
of the policy on maturity of the policy
we get money bank account debit or
insurance company account debit to all
the partners capital accounts in the old
profit sharing ratio old profit sharing
ratio either it will be on maturities on
the death of the partner or on the
expiry of a period if we do this in
between say for example our partner
retires so the policy is then
surrendered because we need the money so
the policy is surrender and the money
received may be used to settle the
account of the retiring partner when
this money is received what amount is
received only the surrender value of the
policy bank account debit or if money is
not received it's only payable by the
insurance company insurance company
account debit to all partners capital
account to all partners capital account
in the old profit sharing patient let us
take an example a B and C share profits
and losses in the ratio to is to truest
of all they take a joint life policy in
year 1 for 60,000 premium of 4,000 is
paid annually on 10th Joe surrender
value of the policy on 31st December of
Radiesse years was in the first year it
is name
second year it's thousand third year
2040 r3000 C retires on 15th April
prepared ledger accounts assuming no
giant joint life policy account is
maintained so basically every year we
will pass the entry seeing joint life
policy premium account debit or
insurance premium account debit to bank
because we pay the amount premium is
4000 premium is 4000 this is one and end
of the year every year we will profit
and loss account debit to insurance
premium joint life policy premium what
4000 this is every year from year one
year two year three year four finally in
here five what happens your fight C
retires and money is received surrender
value what is the surrender value the
surrender value is 3000 so what is the
amount received assuming the surrender
value is received bank account debit
3000 mind you the policy has not matured
if it had matured you would have
received an amount of 60,000 which is
the maturity value but we will get only
an amount of 3000 being the surrender
value at the end of year for bank
account debit 3000 - you can give it to
a 2 B and C in the profit sharing ratio
of 2 is to 2 is to 1 that is thousand
two hundred thousand two hundred and six
hundred in the ratio - is strictly
restricted these would be the accounting
entries let us look at Anita
presentation joint life policy premium
account debit in year 1 - Bank by profit
so it gets closed similarly second year
to bank profit and loss and closed its
treated as an expense of the form it's
closed we don't have any asset account
on receipt of money surrender value bank
account debit in this case it's been
joint life policy account and joint life
policy account debit to a 2b and 2c
thousand two hundred thousand two
hundred and six hundred so bank account
debit to joint life policy account and
joint life policy account debit to the
partners capital accounts always better
to route it through this account instead
of doing it directly like so for example
what did we do before it's a bank
account debit to ABC instead of this we
could change this slightly in this is
actually a combination of two entries so
we could say bank account debit 3000 to
joint life policy account 3000 and then
joint life policy account debit 3000 to
a to be two thousand two hundred
thousand two hundred and six hundred so
premium to Bank treated as an expense we
repeat this premium which is being paid
is an expense of the form it's not an
personal expense of the partners but an
expense of the form goes to the profit
and loss account of the phone every
under this method when we receive the
money on surrender of the policy or in
case of maturity of the policy bank
account debit to joint life policy
account with the amount receive and then
joint life policy account debit to ABC
to the old partners in the old profit
sharing ratio