Death of a Partner Class 12 Notes

Accounting procedures on the death of a partner are similar to that of the retirement of a partner. Here are the death of a partner class 12 notes.

When a partner dies, his heirs are entitled to the amount due and the rights that a retiring partner has. The amount that becomes due to the heirs has been discussed under the retirement of a partner.

Unlike, retirement which can be planned, death may occur on any day. The heirs of the deceased partner also become entitled to a share of the profits earned from the beginning of the accounting year to the date of death.

The partnership deed described the method of ascertaining the profit for this period. The heirs of the deceased partner, are entitled to the following:

• His/Her share in the goodwill of the firm.
• Amount standing to the credit of the deceased partner’s capital account.
• His/Her share of the profit earned from the beginning of the year to the date of death.
• His/Her salary up to the date of his death.
• His/Her share of the gain on revaluation of assets and reassessment of liabilities.
• His/Her share of accumulated profit and reserves.
• Interest on capital, up to the date of his death

Treatment of Goodwill

Calculate the deceased partner’s share of goodwill and pass the entry:

Gaining Partner’s Capital/Current A/c Dr.
To Deceased Partner’s Capital/Current A/c

If any goodwill already appears in the book then it should be written off among all partner’s capital A/c in their old ratio.

Note: If the payment of the deceased partner gets delayed, in such a case the partner is entitled to interest @6% p.a. on the amount due.

Calculation of Profits

Two methods can calculate the profits to the deceased partner:
a) Time Basis
b) Turnover Basis

If the ratio amongst the new partners remains the same then the entry of profit will be:

P/L Suspense A/c Dr.
To Partner’s Capital A/c

If the ratio between the partners is charged then the entry will be:

Gaining Partner’s Capital A/c Dr.
To Sacrificing Partner’s Capital A/c

Based on Time

Deceased Partner’s Share of Profit = Previous Years’ Profit * Time till death/12 * Profit share of deceased partner

Based on Turnover (Or Sales)

Deceased Partner’s Share of Profit = Last Year’s Profit/Last Year’s Sales * Sales till death * Deceased Partner’s Share of Profit during Current year

Note: Adjustments about the share of profit of a deceased partner from the date of the last balance sheet to the date of retirement or death(based on time or turnover) are to be made as follows-

• When there is no change in the profit-sharing ratio of remaining partners: Through profit and loss suspense A/c.
• When there is a change in the profit-sharing ratio of remaining partners: Through Gaining Partners Capital/Current Accounts.

Retirement of a Partner Class 12 Notes

Ascertainment of the amount due to the deceased partner

Journal Entry

Deceased Partner’s Capital A/c Dr.
To Deceased Partner’s Executor’s A/c
(For the amount due to the deceased partner transferred to his/her executor’s A/c)

Important things to keep in mind

• The amount due to the executor of a deceased partner is either paid off immediately or in installments with or without interest as per agreement.
• In the absence of agreement in this regard, the executor at his option receives either interest @6% per annum till the amount is paid off or a share of the profit earned by using the amount due to him. (Under Section 37)
• Any debit balance or deficiency in the deceased partner’s capital A/c will be met by his executor from the private estate of the deceased partner.