# Death of a Partner: meaning, definition, example

## Death of a Partner

A partnership firm is a type of organisation that is established by two or more individuals with a common objective of revenue generation.  The organisation witnesses changes in certain events such as admission of a new partner, retirement or death of an existing partner. In the event of death of a partner, the structure of the partnership is changed in the same way as when a partner retires. The impact of such a change is discussed in this article.

Also Check: MCQ on Retirement and Death of a Partner

 Treatment of Reserves, Accumulated Profits and Accumulated Losses in the Case of Death of a Partner Reserves, Existing Goodwill, accumulated profits/losses appearing in the Balance Sheet of the firm at the time of death of a new partner belong to all partners including the retiring or deceased partner. Hence these should be distributed among all the partners in their old profit sharing ratio. Following Journal Entries Are Required to Be Passed: (1) Distribution of Existing Goodwill All Partners’ Capital A/c  Dr.           To Goodwill A/c (2) Distribution of Reserves Reserve fund/General Reserve A/c  Dr.        To All Partners’ Capital A/c (3) Distribution of Accumulated Losses All Partners’ Capital A/c  Dr.      To Profit & Loss A/c (4) Distribution of Accumulated Profits Profit & Loss A/c  Dr.     To All Partners’ Capital A/c
 Also Refer:

## What is Deceased Partner?

According to the Indian Partnership Act, 1932. Deceased partner is one who has discontinued the partnership due to his death. A contract between the partners of the enterprise is not dissolved by the death of a partner, the estate of a dead partner is not responsible for any act of the enterprise done after his death.
The accounting treatment in the occurrence of death of a partner is :

• Similar to that, when a partner retires and that in case of deceased partner his belonging is transferred to his legal enforcers and settled in a similar way as that of the partner who retires
• However, there is one primary distinction, the retirement usually takes place during the closure of an accounting period or financial year, the death of a partner may take place any time
• Therefore, in the case of a partner, his rights shall also incorporate his share of gains or loss, interest on drawings (if any), interest on capital from the last date of the Balance Sheet to the date of his death of these, the main issue associates to the computation of profit for a moderate period
• Since, it is contemplated burdensome to close the books and outline final a/c, for the period, the dead partner’s share of profit may be computed on the ground of previous year’s gain (or aggregate of past few years) or on the base of sales
 (a) Linking Death of a Partner With Retirement of a Partner (a) Common accounting treatment in case of Retirement of a Partner and Death of a Partner: (Assuming retirement to be on the date of Balance Sheet)  Partners Capital Balance Existing goodwill Partner’s share in the present value of Firm’s Goodwill Revaluation Profit or Loss Reserves, Surplus and Fictitious Assets Drawings made by the partner Asset/Liability taken over by a partner Partner’s Loan given on Assets side or Liabilities side (b) Special accounting treatments required in case of Death of a Partner only: Salary/Commission to a Partner Interest on Capital Interest on Drawings Interest on Loan Share in current year’s Profits Accounting treatments at the time of Death of a Partner is an extension of the Retirement of a Partner. In the above-mentioned list, treatment of category ‘A’ items is exactly the same both for retirement & death. There will be no effect of date of death. But for the treatment of category ‘B’ items date of death plays a very important role. (B) Calculation of Category ‘b’ Items: i. Salary to the deceased partner: Monthly Salary x Time Period Commission as per the agreement for this period only (if any). # Time Period = Period from the date of last Balance Sheet to the date of Death {This period can be in months, weeks or days.} (B) Calculation of Category ‘b’ Items: Capital Balance as per the last Balance Sheet x Rate of Int./100× Time Period/12 iii. Interest on Drawings We’ll use the rules of Interest on Drawings learned earlier and of course, keep in mind the ‘Time Period’. iv. Interest on Loan Amount of Loan as per the last Balance Sheet x Rate of Int./100× Time Period/12 v. Share in Current Year’s Profits To compute the deceased partner’s share in estimated profits there are following two approaches/basis: Time Basis – Under this approach his profit share for the current year is computed on the basis of last year’s profit or last few years’ average profits. Formula:Last Year’s Profit × Time Period/12 × Deceased Partner’s Share Or Average Profits × Time Period/12 × Deceased Partner’s Share Turnover Basis– In this case, his profit share for the current year is estimated using last year’s sales and last year’s profits. Formula: Step 1. Compute Profits % of last year: Last Year’s Profit/Last Year’s Sales × 100 Step 2. Firm’s estimated profit till the date of death: Current Year’s Sales up to the date of death × Profit % Step 3. Decease Partner’s share Firm’s Profit as per Step 2 × Deceased Partner’s ratio (C) Concept Questions for Calculation of Deceased Partner’s Profit Share on Time Basis and On the Basis of Last Year’s Profits: Q.1 A, B, and C were partners sharing profits in the ratio 3:2:1. ‘A’ died on 31st Aug., 2016. As per the agreement, A’s share in profit till the date of death is to be computed on the basis of profits of the year 2015-16 which is 2,40,000. Q.2 B, C, and D were partners sharing profits in the ratio 3:1:2. ‘C’ died on 1st June, 2016. As per agreement C’s share in profit till the date of death is to be computed on the basis of profits/loss of the last year i.e. 2015-16, which is 60,000 (Loss). On the Basis of Last Year’s Profit +/- Adjustment for Any Expense or Loss or Income Left Earlier Q.3 C, D, and E were partners sharing profits in the ratio 5:3:2. ‘E’ died on 31st May, 2016. As per the agreement between Executors of ‘E’ and remaining partners, E’s share in profit till the date of death is to be computed on the basis of profits of the year 2015-16, which is 3,00,000. While computing profits in previous an expense of 30,000 were omitted. On the Basis of Last Year’s Loss +/- Adjustment for Any Expense/loss/income Left Earlier. Q.4 D, E, and F were partners sharing profits in the ratio 3:2:5. ‘D’ died on 1st June 2016. As per the agreement D’s share in profit till the date of death is to be computed on the basis of profits/loss of the last year which is 75,000 (Loss). In the year 2015-16, while preparing Profit & Loss A/c depreciation was charged in excess by 15,000. On the Basis of Last Year’s Profit +/- % Adjustment in the Light of Trend Q.5 E, F, and G were partners sharing profits in the ratio 2:2:1. ‘F’ died on 12th June, 2016.  For F’s share in the profits of Current Year 2016-17, the profits should be taken to have accrued on the same scale as in the last year i.e. 2015-16 which was 1,00,000 and an addition of 10% over it will be made. On the Basis of Average Profits of Last Five Years (Profits Are Given in Additional Info) Q.6 ‘F’, ‘G’ and ‘H’ were partners sharing profits in the ratio 1:2:1. ‘H’ died on 30th June, 2016. In their partnership deed, it was written that in the event of the death of any partner his share in profits (if any) to the date of death will be computed on the basis of Average profits of the last four completed years before death.  Profits of the last five years were as under: 2015-16 : 60,000; 2014-15 : 70,000; 2013-14 : (55,000); 2012-13 : 85,000; 2011-12 : 90,000. Turnover Basis Q.7 ‘J’, ‘K’ and ‘L’ were partners sharing profits in the ratio 2:2:1. ‘K’ died on 30th September, 2016. In their partnership deed, it was written that in the event of the death of any partner his share in profits (if any) to the date of death will be computed on the sales on the basis of Proportion of Last Year’s Profits to Last Year’s Sales.  Sales for the year ended 31st March, 2016 amounted to 6,00,000. Sales for the period between 1st April, 2016 to 30th Sep., 2016 amounted to be 4,80,000. The profits for the year ended 31st March, 2016 amounted to 1,50,000. Q.8 ‘P’, ‘Q’ and ‘R’ were partners sharing profits in the ratio 5:3:2. ‘P’ died on 30th June, 2016. In their partnership deed, it was written that in the event of the death of any partner his share in profits (if any) to the date of death will be computed on the sales on the basis of Proportion of Last Year’s Profits to Last Year’s Sales. Sales for the current year till 30th June, 2016 amounted to `6,00,000. The proportion of last year’s profits to last year’s sales was 15%. Compute P’s share in the current year’s profit and also pass journal entry.
 Multiple Choice Questions Q.1 _____________are distributed even if question is silent. a. Reserves  b. Accumulated profit & losses c. Purchase expense d. Both (a) & (b) Q.2 Accrued losses are __________ to capitals accounts of the partner. a. Credited  b. Debited c. Not recorded d. Distributed
 Answer Key 1-d, 2-b