Page 73 - MA-12

Retirement and Death of a Partner 4.3
(iii) Share of profit or loss till the date of retirement.
(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 retirement
is deducted.
The net amount payable will be settled by paying him cash or by transferring it to a separate Loan Account.

DEATH OF A PARTNER
• The issues arising on the death of a partner are similar to those arising on retirement of a partner. Assets
are revalued and liabilities are reassessed; the resultant profit or loss is transferred to the Capital Accounts
of all partners including the deceased partner. Goodwill, Accumulated Profit or Loss and the General Reserve
are also dealt in the same manner as is in the case of retirement.

• 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.
Retiring or 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 Retiring/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]