Death of a Partner: meaning, definition, example (2024)

A partnership firm is a type of organisation that is established by two or more individuals with a common objective of revenue generation. The organisation witnesses changes in certain events such as admission of a new partner, retirement or death of an existing partner. In the event of death of a partner, the structure of the partnership is changed in the same way as when a partner retires. The impact of such a change is discussed in this article.

According to the Indian Partnership Act, 1932. Deceased partner is one who has discontinued the partnership due to his death. A contract between the partners of the enterprise is not dissolved by the death of a partner, the estate of a dead partner is not responsible for any act of the enterprise done after his death.

(a) Linking Death of a Partner With Retirement of a Partner(a) Common accounting treatment in case of Retirement of a Partner and Death of a Partner:(Assuming retirement to be on the date of Balance Sheet)

Partners Capital Balance
Existing goodwill
Partner’s share in the present value of Firm’s Goodwill
Revaluation Profit or Loss
Reserves, Surplus and Fictitious Assets
Drawings made by the partner
Asset/Liability taken over by a partner
Partner’s Loan given on Assets side or Liabilities side

(b) Special accounting treatments required in case of Death of a Partner only:

Salary/Commission to a Partner
Interest on Capital
Interest on Drawings
Interest on Loan
Share in current year’s Profits

Accounting treatments at the time of Death of a Partner is an extension of the Retirement of a Partner. In the above-mentioned list, treatment of category ‘A’ items is exactly the same both for retirement & death. There will be no effect of date of death.
But for the treatment of category ‘B’ items date of death plays a very important role.

(B) Calculation of Category ‘b’ Items:i. Salary to the deceased partner:

Monthly Salary x Time Period
Commission as per the agreement for this period only (if any).

# Time Period = Period from the date of last Balance Sheet to the date of Death

{This period can be in months, weeks or days.}

Firm’s Profit as per Step 2 × Deceased Partner’s ratio

(C) Concept Questions for Calculation of Deceased Partner’s Profit Share onTime Basis andOn the Basis of Last Year’s Profits:Q.1 A, B, and C were partners sharing profits in the ratio 3:2:1. ‘A’ died on 31^st Aug., 2016. As per the agreement, A’s share in profit till the date of death is to be computed on the basis of profits of the year 2015-16 which is 2,40,000.Q.2 B, C, and D were partners sharing profits in the ratio 3:1:2. ‘C’ died on 1^st June, 2016. As per agreement C’s share in profit till the date of death is to be computed on the basis of profits/loss of the last year i.e. 2015-16, which is 60,000 (Loss).On the Basis of Last Year’s Profit +/- Adjustment for Any Expense or Loss or Income Left EarlierQ.3 C, D, and E were partners sharing profits in the ratio 5:3:2. ‘E’ died on 31^st May, 2016. As per the agreement between Executors of ‘E’ and remaining partners, E’s share in profit till the date of death is to be computed on the basis of profits of the year 2015-16, which is `3,00,000. While computing profits in previous an expense of `30,000 were omitted.On the Basis of Last Year’s Loss +/- Adjustment for Any Expense/loss/income Left Earlier.Q.4 D, E, and F were partners sharing profits in the ratio 3:2:5. ‘D’ died on 1^st June 2016. As per the agreement D’s share in profit till the date of death is to be computed on the basis of profits/loss of the last year which is `75,000 (Loss). In the year 2015-16, while preparing Profit & Loss A/c depreciation was charged in excess by `15,000.On the Basis of Last Year’s Profit +/- % Adjustment in the Light of TrendQ.5 E, F, and G were partners sharing profits in the ratio 2:2:1. ‘F’ died on 12^th June, 2016.

For F’s share in the profits of Current Year 2016-17, the profits should be taken to have accrued on the same scale as in the last year i.e. 2015-16 which was `1,00,000 and an addition of 10% over it will be made.

On the Basis of Average Profits of Last Five Years (Profits Are Given in Additional Info)Q.6 ‘F’, ‘G’ and ‘H’ were partners sharing profits in the ratio 1:2:1. ‘H’ died on 30^th June, 2016. In their partnership deed, it was written that in the event of the death of any partner his share in profits (if any) to the date of death will be computed on the basis of Average profits of the last four completed years before death.

Profits of the last five years were as under:

2015-16 : 60,000;

2014-15 : 70,000;

2013-14 : (55,000);

2012-13 : 85,000;

2011-12 : 90,000.

Turnover BasisQ.7 ‘J’, ‘K’ and ‘L’ were partners sharing profits in the ratio 2:2:1. ‘K’ died on 30^th September, 2016. In their partnership deed, it was written that in the event of the death of any partner his share in profits (if any) to the date of death will be computed on the sales on the basis of Proportion of Last Year’s Profits to Last Year’s Sales.

Sales for the year ended 31^st March, 2016 amounted to `6,00,000. Sales for the period between 1^st April, 2016 to 30^th Sep., 2016 amounted to be `4,80,000. The profits for the year ended 31^st March, 2016 amounted to `1,50,000.

Q.8 ‘P’, ‘Q’ and ‘R’ were partners sharing profits in the ratio 5:3:2. ‘P’ died on 30^th June, 2016. In their partnership deed, it was written that in the event of the death of any partner his share in profits (if any) to the date of death will be computed on the sales on the basis of Proportion of Last Year’s Profits to Last Year’s Sales. Sales for the current year till 30th June, 2016 amounted to `6,00,000. The proportion of last year’s profits to last year’s sales was 15%. Compute P’s share in the current year’s profit and also pass journal entry.

The above mentioned is the concept that is explained in detail about the Death of a Partner for the class 12 Commerce students. To know more, stay tuned to BYJU’S.