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C H A P T E R

Death of a Partner

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Death of a Partner
Death of a partner leads to reconstitution of the firm. The firm may continue its business with the
remaining partners.
2. Revaluation of Assets
Revaluation of Assets means change in the value of assets, i.e., present value being different from
the book value of the assets.
3. Reassessment of Liabilities
Reassessment of Liabilities means reassessing the liabilities and determining the change, i.e.,
whether the liability is more or less than that shown in the books of account.
4. Gaining Ratio
Ratio in which the continuing partners acquire deceased partner’s share is called gaining ratio.
5. New Profit-sharing Ratio
Ratio in which the continuing partners (i.e., partners other than deceased partner) decide to share
future profits and losses, is known as new profit-sharing ratio.
6. Profit and Loss Suspense Account
It is the account which is debited to adjust the share of profit of deceased partner between the date
of last Balance Sheet and the date of death, when profit-sharing ratio of continuing partners does
not change.

SUMMARY OF THE CHAPTER

• Adjustment on Death of a Partner: At the time of death of a partner, few accounting issues arise and
are settled, e.g., calculation of the new profit-sharing ratio and the gaining ratio, revaluation of assets
and liabilities, treatment of goodwill, accumulated profits, reserves and surplus, share in profits or losses
of the outgoing partner up to the date of retirement.
• New Profit-sharing Ratio: The ratio in which the continuing partners (i.e., partners other than the
deceased one) decide to share the future profits and losses, is known as the ‘New Profit-sharing Ratio’.
New Share = Old Share + Acquired Share
Unless agreed otherwise, it is presumed that the continuing partners acquire the deceased partner’s share in
their old profit-sharing ratio.
• Gaining Ratio: The ratio in which the continuing partners acquire the deceased partner’s share is known
as the ‘Gaining Ratio’.
Gaining Ratio = New Ratio – Old Ratio
Gain of a Partner = New Share – Old Share
• Adjustment with regard to Goodwill: When a partner dies his share of profit is taken by the remaining
partners. The remaining partners then compensate the deceased partner in the form of goodwill in their
gaining ratio. The following entry is recorded for this purpose: