Page 104 - ISCDEBK-12

5.2 Double Entry Book Keeping (Section A)—ISC XII

Gaining Partners’ Capital/Current A/cs ...Dr. [In gaining ratio]
To Deceased Partner’s Capital A/c [With his share of goodwill]
If Goodwill Account appears in the old Balance Sheet, it is written off by passing the following entry:
All Partners’ Capital/Current A/cs ...Dr. [In old ratio]
To Goodwill A/c
• Revaluation of Assets and Reassessment of Liabilities: At the time of death of a partner, assets are
revalued and liabilities are reassessed; the increase or decrease in value of each asset/liability is recorded
in the Revaluation Account. The net balance in the Revaluation Account is transferred to the Capital
Accounts of all the partners (including the deceased partner) in their old profit-sharing ratio.
• Adjustment for Reserves and Accumulated Profits/Losses: For the past undistributed profits or reserves,
the amount is credited to all the partners in the old profit-sharing ratio.
• Excess of Workmen Compensation Reserve over the Workmen Compensation Liability is credited to all Partners
in their Old Profit-sharing Ratio.
• Excess of Investment Fluctuation Reserve over difference between Book Value and Market Value is credited
to all Partners in their Old Profit-sharing Ratio.
• Amount Due to a Deceased Partner: Amount due to a deceased partner includes:
(i) Capital on the date of last Balance Sheet.
(ii) Interest or salary, if any, payable to him.
(iii) Share of profit or loss till the date of death.
(iv) Share in the gain (profit) or loss on revaluation of assets and reassessment of liabilities.
(v) Share in the goodwill of the firm.
(vi) Share in the General Reserve or Profit and Loss Account appearing in the Balance Sheet.
Out of the total of (i) to (vi), the amount of drawings and interest on drawings till the date of death is deducted.
The net amount payable will be settled by paying him cash or by transferring it to deceased partner’s
executor’s account.
• Share of Profit up to the Date of Death: If a partner dies on any date after the date of Balance Sheet;
his share of profit is calculated from the beginning of the accounting year to the date of death on
the basis of average profits or last year’s profit. It is calculated on the basis of time; or on the basis
of sales.
Journal Entry for both the basis:
Profit and Loss Suspense A/c ...Dr.
To Deceased Partner’s Capital A/c
Note: The balance of Profit and Loss Suspense Account is shown in the interim Balance Sheet, i.e.,
Balance Sheet after retirement.
Deceased Partner’s share of profit will be credited to his Capital Account and debited to the continuing
Partners’ Capital Accounts in the Gaining Ratio when the profit-sharing ratio of the continuing partners,
in between them, changes.
Gaining Partners’ Capital/Current A/cs ...Dr. [in Gaining Ratio]
To Deceased Partner’s Capital A/c
• Amount Due to Deceased Partner: The deceased partner’s share is also calculated in the same way as
in the case of retiring partner’s share. Amount due to a deceased partner shown by his Capital Account
is transferred to his Executor’s Account. The entry will be:
Deceased Partner’s Capital A/c ...Dr.
To Deceased Partner’s Executor’s A/c
• Settlement of Deceased Partner’s Executor’s Account: If the amount is paid in cash or in instalment,
the entry will be:
Deceased Partner’s Executor’s A/c ...Dr.
To Cash/Bank A/c
• In the absence of an agreement, the outgoing partner at his option is entitled to receive either interest
@ 6% p.a. till the amount is paid off or a share of the profit which has been earned by using the amount
due to him. [Section 37 of Indian Partnership Act, 1932]