Death of a Partner

Similar to the admission and retirement of a partner, the death of any of the partners of a partnership also results in the reconstitution of a partnership. This is because, with the death of a partner, the old partnership deed comes to an end and is replaced by a newly formed partnership agreement. This new partnership agreement defines the new relationship among the remaining or continuing partners of the firm. The death of a partner also changes the profit sharing ratio, so we need to calculate the new profit sharing ratio among the continuing partners.

In addition to this, the need for revaluing assets and liabilities also becomes necessary. Thus, it can be said that there is not much difference in the accounting treatment of retirement of a partner and death of a partner. In the case of the retirement of a partner, the amount due to the retiring partner is paid to him/her or transferred to his/her loan account. But in case of death of a partner, the amount due to the deceased partner is paid to his/her legal representative or transferred to his/her Executor’s Account.

The mentioned below are some accounting matters that are required to be dealt with in case of the death of a partner

  • Calculation of New Profit Sharing Ratio
  • Treatment of Goodwill
  • Adjustment for Revaluation of Asset and Liabilities
  • Adjustment of Accumulated Profits and Losses
  • Adjustment of Partners’ Capital Account
  • Ascertaining the Share of Profits of the Deceased Partner till the Date of Death
  • Treatment of Joint Life Policy
  • Disposal of Amount Due to the Deceased Partner

From the above list of adjustments made at the time of death, we can say that the first five points i.e. (i) to (v) remains the same. However; the treatment of the following three items in case of death of a partner differs from that of in case of retirement.

  • Ascertaining the Share of Profits of the Deceased Partner till the Date of Death
  • Treatment of Joint Life Policy
  • Disposal of Amount Due to the Deceased Partner

Ascertainment of Share of Profits of Deceased Partner till the Date of His/Her Death

In case of death of a partner, the deceased partner is entitled to receive his/her share in all the profits and losses that the firm has earned/incurred till his/her date of death. Practically, it is not possible for any firm to close its books of accounts at any time (during an accounting period) with respect to the death of a partner. Therefore, in such a situation, the share of profits of the deceased partner is ascertained either on Time Basis or on a Turnover/Sales Basis. The amount of profit or loss so ascertained is dispensed to the deceased partner through the Profit and Loss Suspense Account. The following are the Journal entries to record profit and loss up-to-date of the death.

Disposal of Amount Due to the Deceased Partner

In the case of the death of a partner, the amount due to the deceased partner is paid to his/her executor. The amount due to the deceased partner is calculated in the same way as calculated in the case of the retirement of a partner. The deceased partner is entitled to share all the profits/losses which have been earned/incurred during the period for which he remained in the partnership business i.e. till the date of his/her death.


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