DEATH OF A PARTNER

The following are the main differences between Retirement of a Partner and death of a Partner
1. When the partner is retired, he is known as retiring partner or outgoing partner. But when
the partner is dead, he is known as Deceased Partner.
2. The retirement of partner is possible as on a convenient date
i.e. accounting year ending or beginning of the year. But death of the partner maybe as on
any date.
3. The amount payable to retiring partner is either paid to him or transferred to his Loan A/c.
But when the partner dead the amount is paid to the legal heirs or transferred to Executors
Loan A/c or Legal Representatives Loan A/c.

The Accounting treatment under Retirement & Death is similar. The amount payable to
executors is calculated as follows:
1. Capital balance appearing in the balance sheet
2. Share of reserve or accumulated profits
3. Share of revaluation profit (share of revaluation loss is deducted)
4. Share of goodwill
5. Share of joint life policy
6. Share of profit from the date of balance sheet till the date of death.

If partnership deed says to pay interest on capital, salary or commission, etc. that will be
calculated and added to the above amount.
From the above total, drawings and interest on drawings if any till the date of death will be
deducted and the remaining balance amount will be paid to legal heirs or transferred to
Executors Loan A/c.

Accounting Treatment of Retirement and Death is similar

PROBLEM NO. 1
Following is the Balance Sheet of Asha, Usha and Nisha who are sharing profits and losses in
the ratio of 2:2:1
Balance Sheet as on 31-03-2016
Liabilities Amount Assets Amount

Capital Accounts Machinery 6,00,000

Asha 6,50,000 Vehicles 3,00,000

Usha 4,00,000 Investment 2,50,000

Nisha 3,00,000 Inventory 3,00,000

General Reserve 2,50,000 Trade Receivables 1,00,000

Sundry Creditors 2,00,000 Cash at Bank 3,30,000

Bills Payable 80,000

18,80,000 18,80,000

Nisha died on 30th June 2016 and following terms are agreed between remaining partners
and executors of deceased partner.
1. Goodwill of the firm is valued at 2 years purchase of Average Profit of last 3 years
and Average profit was ₹ 1,50,000.
2. Machinery depreciated by 10%, Vehicle depreciated by ₹ 30,000 and Stock revalued
at ₹ 3,50,000.
3. Investment is undervalued by ₹ 20,000 and provide 5% reserve on Trade Receivables
and 4% reserve for discount on Creditors.
4. Profit till the date of his death should be calculated on the basis of Average profit of
last 3 years.
5. The amount payable to deceased partner should be transferred to Executors Loan A/c.
Prepare

a. Revaluation Account
b. Partners Capital Accounts
c. Balance Sheet of the reconstituted firm