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C H A P T E R

Death of a Partner

MEANING OF KEY TERMS USED IN THIS CHAPTER

1. Gaining Ratio The ratio in which the continuing partners acquire the outgoing or deceased
partner’s profit share is called gaining ratio.
2. New Profit-sharing The ratio in which the continuing partners (i.e., partners other than deceased
Ratio partner) decide to share future profits and losses, is known as new profit-
sharing ratio.
3. Profit and Loss It is the account which is debited or credited to adjust the share of profit
Suspense Account or loss till the date of death of the deceased partner when profit-sharing
ratio of the continuing partners does not change.

CHAPTER SUMMARY

• The problems 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 gain (profit) or loss is transferred to the Capital
Accounts of all partners including the deceased partner. Goodwill, Accumulated Profits or Losses and General
Reserve are also dealt in the same manner as is in the case of retirement.
• Deceased Partner’s Share of Goodwill is adjusted by debiting Gaining Partners’ Capital Accounts and crediting
Deceased Partner’s Capital Account.
• Share of Profit up to the Date of Death: If a partner dies on any date after the date of the Balance Sheet, his
share of profit is calculated from the beginning of the year to the date of death on the basis of time or sales.
When his share of profit is calculated on the basis of time, it may be on the basis of previous years’ profit or
average profit of past years.
Journal Entry when Profit-sharing Ratio of remaining or continuing partners does not change:
Profit and Loss Suspense A/c ...Dr.
To Deceased Partner’s Capital A/c
Journal Entry when Profit-sharing Ratio of remaining or continuing partners changes:
Continuing (Gaining) Partners’ Capital/Current A/cs ...Dr. [In Gaining Ratio]
To Deceased Partner’s Capital A/c
In Case of Loss: Reserve of the above entry is passed.
• Amount Due to a Deceased Partner: The deceased partner’s share is also calculated in the same way as in
the case of retiring partner. Amount due to a deceased partner shown by his Capital Account is transferred to
his Executors’ Account. The entry will be:
Deceased Partner’s Capital A/c ...Dr.
To Deceased Partner’s Executors’ A/c
• Settlement of a Deceased Partner’s Executors’ Account: If the amount is paid in cash or in instalments, the
entry will be:
Deceased Partner’s Executors’ A/c ...Dr.
To Cash/Bank A/c
• In the absence of an agreement, the retiring partner or legal heir of deceased partner at his option is entitled
to receive either interest @ 6% p.a. till the due amount is paid or share of the profit which has been earned
by using the amount due to him (Section 37).