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Death of a partner

Death of a partner

The amount payable to the deceased partner is ascertained by considering his capital account balance, Interest on capital, salary, commission etctill the date of death Drawings Interest on drawings Share in profit or loss on revaluation of assets and liabilities Undistributed profit or loss, profit up to the date of death Joint life policy or individual policies Goodwill of the firm

Death of a partner- Accounting Adjustments


Revaluation of assets and liabilities Distribution of accumulated profits or losses Treatment of goodwill Calculation of deceased partners share of profit and loss from the date of last balance sheet to the date of death. Closing the deceased partners capital account Adjustment of the continuing partners capital account

Goodwill
It is the compensation, or the premium payable to the deceased partner by the continuing partners. The methods of treating goodwill are:

Goodwill is raised to its full value and not written off:

Goodwill A/c Dr To all partners capital Ac (old profit ratio) Note: Goodwill appears as an asset in the balance sheet of the new firm.

Goodwill
Goodwill is raised to its full value and is written off by the continuing partners: For raising goodwill: Goodwill A/c Dr To all partners capital A/c (old profit ratio)

For writing off goodwill: Continuing partners capital account Dr (New profit ratio) To Goodwill A/c

Goodwill

Goodwill is raised only to the extent of deceased partner and allowed to remain in the books of the new firm.

Goodwill A/c Dr To deceased partners capital A/c Note: Goodwill shall appear as an asset in the balance sheet of the continuing partners.

Goodwill

Goodwill is raised only to the extent of deceased partner but is written off by the continuing partners:

For raising goodwill: Goodwill A/c Dr To deceased partners capital A/c For writing off goodwill: Continuing partners capital account (gain ratio) To Goodwill A/c Dr

Goodwill

No goodwill is raised, but goodwill amount is adjusted directly into the capital accounts:

Continuing partners capital account Dr (gain ratio) To Deceased Partners capital A/c

Goodwill

Goodwill already appears in the books of the firm and is revalued:

i)

Where goodwill already appears at a lower value than its real value: Goodwill A/c (net increase on revaluation) Dr To all partners capital Ac (old profit ratio)

Where goodwill already appears at a higher value than its real value: All partners capital A/c Dr To Goodwill A/c
ii)

Recommendation of Accounting Standard-26


Where goodwill A/c already appears in the books of a firm and is revalued at the time of death of a partner : 1) Write off the existing book value of goodwill by debiting all partners accounts in their old profit sharing ratio and by crediting the goodwill account. 2) Give credit for outgoing partners full share of goodwill to outgoing partner by debiting gaining partners in their gaining ratio and crediting outgoing partner.

Interest on capital, salary, remuneration, commission etc

Interest on capital, salary, remuneration, Dr commission A/c To deceased partners capital A/c

Drawings
Deceased partners capital A/c To Deceased partners drawings A/c Dr

Interest on Drawings
Deceased partners capital A/c To Interest on drawings A/c Dr

Adjustments
Profit upto the date of death Profit and loss suspense A/c Dr To Partners capital A/c (with the share of the deceased partners profit) Deceased partners Capital A/c Dr To Executors/ Legal representatives A/c Executors/ Legal representatives A/c Dr To cash/Bank A/c

Closing the deceased partners capital A/c Executors A/c

Joint life policy


Treating premiums paid as expenses Treating premiums paid as an asset Maintaining joint life policy account and joint life policy fund account at surrender value. Maintaining joint life policy account at its full value with joint life policy fund account.