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Death of a partner

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Death of a partner

The amount payable to the deceased partner isascertained by considering his

capital account balance,

Interest on capital, salary, commission etctillthe date of death

Drawings

Interest on drawings

Share in profit or loss on revaluation of assetsand liabilities

Undistributed profit or loss, profit up to the dateof death

Joint life policy or individual policies

Goodwill of the firm

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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 lastbalance sheet to the date of death.

Closing the deceased partners capitalaccount

Adjustment of the continuing partnerscapital account

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Goodwill

It is the compensation, or the premium payableto the deceased partner by the continuingpartners.

The methods of treating goodwill are:

Goodwill is raised to its full value and not writtenoff:

Goodwill A/cDr

To all partners capital Ac (old profit ratio)

Note: Goodwill appears as an asset in the balancesheet of the new firm.

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Goodwill

Goodwill is raised to its full value and iswritten 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 accountDr

(New profit ratio)

To Goodwill A/c

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Goodwill

Goodwill is raised only to the extent ofdeceased 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.

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Goodwill Goodwill is raised only to the extent of deceased

partner but is written off by the continuingpartners:

For raising goodwill:

Goodwill A/cDr

To deceased partners capital A/c

For writing off goodwill:

Continuing partners capital account Dr

(gain ratio)

To Goodwill A/c

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Goodwill

No goodwill is raised, but goodwillamount is adjusted directly into the

capital accounts:

Continuing partners capital account

Dr

(gain ratio)

To Deceased Partners capital A/c

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Goodwill

Goodwill already appears in the books of the firmand is revalued:

i) Where goodwill already appears at a lowervalue than its real value:

Goodwill A/c (net increase on revaluation)Dr

To all partners capital Ac (old profit ratio)

ii) Where goodwill already appears at a highervalue than its real value:

All partners capital A/cDr

To Goodwill A/c

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Recommendation of Accounting

Standard-26 Where goodwill A/c already appears in

the books of a firm and is revalued at thetime of death of a partner :

1) Write off the existing book value ofgoodwill by debiting all partnersaccounts in their old profit sharing ratioand by crediting the goodwill account.

2) Give credit for outgoing partners fullshare of goodwill to outgoing partner bydebiting gaining partners in their gainingratio and crediting outgoing partner.

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Interest on capital, salary,

remuneration, commission etc

Interest on capital, salary, remuneration,

Dr commission A/c

To deceased partners capital A/c

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Drawings

Deceased partners capital A/c DrTo Deceased partners drawings A/c

Interest on Drawings

Deceased partners capital A/c Dr

To Interest on drawings A/c

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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 partnersprofit)

Closing the deceased

partners capital A/c

Deceased partners Capital A/c

Dr

To Executors/ Legal representatives A/c

Executors A/c Executors/ Legal representatives A/c

Dr

To cash/Bank A/c

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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 atsurrender value.

Maintaining joint life policy account at

its full value with joint life policy fundaccount.