Chapter 6 Death of a Partner

The partnership comes to an end immediately, whenever a partner dies although the firm may continue
with the remaining partners. The deceased partner’s executors are entitled to get his share in the firm as
per the provisions of partnership agreement. His share in the firm is calculated in the same manner as
done in retirement.

Difference with retirement is, retirement takes place at an effective date, whereas death may occur any
time during the year. In retirement payment is made to retiring partner and in death to the legal
representative of the partner.

Deceased Partner’s Capital A/c

Particulars Amount Particulars Amount
To Revaluation A/c (loss) By Bal B/d
To Share in Accumulated Losses By P&L Suspense A/c (share in profit
To Cash (Drawings upto date of upto date of death)
death) By Revaluation A/c (Profit)
To P&L Suspense (Share in loss upto By Share of Goodwill
date of death) By General Reserve/P&L A/c
To Interest on drawings By interest on capital
To Goodwill (Share in goodwill By Salary/Commission
existing)
To Deceased partner Executor’s A/c

Settlement of deceased partners executor’s A/c

When payment is made in full in one When payment is made in more than one installment
installment
Deceased Partner’s Executor’s A/c Dr. Unless agreed otherwise, the executors are entitled to interest 6%
To Bank A/c p.a or opt to take share in profits instead of interest.
Interest A/c Dr.
To Deceased Partner’s Executor’s A/c

Deceased Partner’s Executor’s A/c Dr.

To Bank A/c

Outgoing Partner’s Share in Profits

Step 1. Determination of profits of the firm from the date of last balance sheet to the date of
death/retirement
On time Basis On turnover/sales basis

= No. of days or months from the date of last = sales from the date of last balance sheet to date
balance sheet to date of death/365 or 12 months of death/previous year sales or average sales of a
X previous year profits or Average profits of a given given no. of past years
no. of past years X previous year profit or average profits of a given
no. of past years
Step 2. Calculation of outgoing partner’s share in profits
= Amount calculated in Step.1 X Proportion of share of outgoing partner
 Accounting Treatment of deceased partners share in profits

Through P&L Suspense A/c Through Capital Transfer

(When new profit sharing ratio of continuing (When new profit sharing ratio of continuing
partner does not differ from old profit sharing ratio) partner differs from old profit sharing ratio)

In case of Profit In case of profit

P&L Suspense A/c Dr. Gaining Partners Capital A/c Dr.

To Deceased Partner’s Capital A/c To Deceased Partner’s Capital A/c

In Case of Loss In case of Loss

Deceased Partner’s Capital A/c Dr. Deceased Partner’s Capital A/c Dr.
To P&L Suspense A/c To Gaining Partners Capital A/c

Treatment of Goodwill

Gaining Partner’s Capital A/c Dr.

To Deceased Partner’s Capital A/c

Multiple Choice Questions

1. The executors of the deceased partner are entitled to the share of profit earned by the firm from the
date of last balance sheet and to the date of death. which of the entry will be passed for this purpose
(a) Profit & loss suspense A/c Dr.
To X A/c
(b) X A/c Dr.
To profit & loss A/c
(c) X A/c Dr.
To memorandum revaluation A/C
(d) X A/c Dr.
To profit & loss suspense A/c
2. The estate of a partner who dies, or who become insolvent, is not liable for partnership debt
contracted......
(a) After the date of the death or insolvency
(b) Before the date of the death or insolvency
(c) After the 1st day of insolvency year in which he dies or becomes insolvent
(d) All of the above
3. The estate of a deceased partner is liable for any act of the firm done after his death
(a) True
(b) Partly true
(c) False
(d) None of the above
4. P ,Q and R as are in partnership Q dies on 15th June , which of the following statement is true
(a) Q’s estate is not liable at all
(b) Q’s estate is not liable for any act of the firm done after 15th June
(c) Q’s estate is liable for all acts up to the end of the financial year when the death occurred
(d) Q’s estate is liable only up to the previous financial year.
5. As per section 37 of the Indian partnership act , 1932 , the executors would be entitled at their choice
to the calculated from the date of death till the date of payment on the final amount due to the dead
partner at ......p. a .
(a) 7%
(b) 4%
(c) 6%
(d) 12%
6. if three partners A,B & C are sharing profit as 5:3:2 then on the death of a partner A , how much B & C
will pay to A’s executor on account of goodwill. Goodwill is to be calculated on the basis of 2 years
purchase of last 3 years average Rs 3,46,000 and Rs 4,05,000
(a) Rs 2,16,000 & Rs 1,42,000
(b) Rs 2,44,000 & Rs 2,16,000
(c) Rs 3,60,000 & Rs 3,60,000
(d) Rs 2,16,000 & Rs 1,44,000

(Ans 1a,2a,3c,4b,5c,6d)

Practical Questions

Chapter: Accounting for death of Partnership

Q.1 On 31st March, 2019, the Balance sheet of Pooja, Qureshi and Ross, who were partners in a firm, was
as under:

Liabilities Amt Assets Amt

Capital A/cs: Building 2,60,000
Pooja 1,50,000 Investment 1,10,000
Qureshi 1,00,000 Qureshi’s Loan 1,00,000
Ross 3,50,00 Debtors 1,50,000
1,00,000 0 Stock 1,20,000
General reserve 2,00,00 Cash 60,000
Sundry creditors 0
2,50,00
0
8,00,00 8,00,000
0
Qureshi dies on 1st July, 2019. Profit sharing ratio of the partners was 2:1:1. On the death of a partner, the
Partnership deed provided for the following:
(i) His share in the profits of the firm till the date of his death will be calculated on the basis of average
profits of last three completed years.
(ii) Goodwill of the firm will be calculated on the basis of total profit of last two years.
(iii) Interest on loan given by the firm to a partner will be charged at the rate of 6% p.a. or Rs 4,000,
whichever is more
(iv) Profits for the last three years were Rs 45,000; Rs 48,000; and Rs 33,000.
Prepare Qureshi’s capital account to be rendered to his executors.

(Ans. Qureshi’s Executor’s A/c= 68,875)

(S. Chand Q.18 Page M.26)

Q.2 Ramesh, Suresh and Naresh were partners in a firm sharing profits in the ratio of 2:2:1. On 31 st March,
2019, their Balance Sheet was as follow:

Liabilities Amt Assets Amt

Creditors 60,000 Bank 90,000
Bills payable 40,000 Stock 70,000
General reserve 30,000 Debtors 40,000
Capital A/c: Land and 5,00,000
Ramesh 2,36,000 building
Suresh 2,36,000
Naresh 5,70,000
98,000
7,00,000 7,00,000
th
Suresh died on 30 June, 2019. The Partnership Deed provided for following on the death of a partner:
(i) Goodwill of the firm was to be valued at 2 years purchase of the average profit of last 5 years. The
profits for the year ended 31st March 2015, 31st March 2016, 31st March 2017, 31st March 2018 were Rs
50,000; Rs 80,000; Rs 1,10,000 and Rs 2,20,000 respectively. Loss for the year ended 31 st March, 2019 was
Rs 1,60,000.
(ii) Suresh’s share in the profit or loss till date of his death was to be calculated on the basis of the profit or
loss for the year ended 31st March, 2019.
(a) Goodwill of the firm and Suresh’s share of goodwill at the time of his death.
(b) Suresh’s share in profit or loss of the firm till the date of his death.
(c) Prepare Suresh’s capital account at the time of his death to be presented to his executor.

(Ans. Suresh’s share of Goodwill= 48,000; Suresh’s share of profit= 16,000; Suresh’s executors A/c=
2,80,000)

(S.Chand Q.18 Page M.76)

Q.3 Ram, Rahim and Robert were partners sharing profits in the ratio of 2:3:1. Robert died on 30 th
September, 2018. On 31st March, 2018, their Balance sheet was as follow:

Liabilities Amt Assets Amt

Creditors 3,60,000 Cash 14,000
Workmen compensation reserve 20,000 Bank 2,96,000
Capital A/cs: Stock 80,000
Ram 1,00,000 Debtors 3,00,000
Rahim 2,00,000 Less: Provision for doubtful Debts 10,000 2,90,000
Robert 3,00,000 6,00,000 Investments 50,000
Land 2,50,000
9,80,000 9,80,000
On the date of Robert’s death, i.e., 30th September, 2018, following was agreed upon:
(i) Goodwill is to be valued at two years purchase of average profit of last three years, i.e., 2015-16—Rs
45,000; 2016-17—Rs 90,000 and 2017-18—Rs 1,35,000.
(ii) Robert’s share of profit till the date of his death will be calculated on the basis of average profit of last
three years.
(iii) Land was undervalued by Rs 25,000 and stock overvalued by Rs 8,000.
(iv) Provision for Doubtful debts is to be made at 5% of Debtors.
(v) Claim of Workmen Compensation is estimated at Rs 5,000.
Robert’s Executors was paid the sum due in two equal annual instalments along with interest 10% p.a.
Prepare Robert’s capital account to be presented to his executor.

(Ans. Robert’s Executors A/c= 3,42,000)

(S. Chand Q.18 Page M 101)

Q.4 Following is the Balance sheet of Black, Brown and white as on 31st March—

Liabilities Amt Assets Amt

Capital A/cs: Plant and machinery 1,00,000
Black 1,00,000 Stock 40,000
Brown 50,000 Sundry debtors 60,000
White 2,00,00 Cash at bank 50,000
50,000 0 Cash in hand 2,000
Reserve fund 32,000
Sundry creditors 20,000
2,52,00 2,52,000
0
White died on 30th June. Under the Partnership Deed, the Executors of a deceased partner were entitled
to--
(a) Amount standing to the credit of the Partner’s capital Account.
(b) Interest on capital at 5% p.a.
(c) Share of Goodwill on the basis of twice the average of the past three years profits. (d)
Share of profits from the closing of last financial year to the date of death, on the basis of the last year’s
profits.
> White’s share of goodwill will be adjusted to the accounts of Black and Brown who will maintain a profit
sharing ratio of 2:1 in the new firm. They decide not to raise any goodwill account.
> Profits for 2005, 2006 and 2007 were Rs 80,000, Rs 90,000 and Rs 1,00,000 respectively. Profits were
shared in the ratio of capitals.
Pass the necessary Journal entries and draw up white’s account to rendered to his executors.

(Ans. White executors a/c= 1,09,875)

(Paduka Illustration 18 Page 9.46)

Q.5 Ramu, Shamu and Raju were partners sharing profits and losses in the ratio of 3:2:2. Their balance
sheet as on 01.01.2017was as follow—

Liabilities Amt Assets Amt

Capital Accounts Non-current Assets: Fixed Assets 80,000
 Ramu 30,000 Current Assets:
Shamu Stock 15,000
20,000 70,000 Debtors 12,000
Raju 20,000 14,000 Cash and Bank 1,951
Reserves 24,951
Current liabilities: Creditors
1,08,95 1,08,951
1
On 1st October 2017, Ramu died. His heirs agreed that--
(a) Goodwill of the firm be valued at 2 years purchase of Average profit of past three years. Profits for the
year 2010, 2011 and 2012 were Rs 30,000, Rs 40,000 and Rs 47,600 respectively.
(b) Fixed assets be revalued at Rs 1.01,000.
(c) Profit to be shared, earned in subsequent period after death of Ramu, till settlement of his executors
claim.
Ramu’s Heirs Account was settled on 31.12.2017 by bringing in required cash by remaining partners in
equal proportion, leaving cash balance of Rs 1,234. Each Partner had drawn at Rs 1,000 per month for
personal use.

Profit for the current year after charging depreciation of Rs 9,000 (Rs 6,000 for first three quarters and Rs
3,000 for last quarter) was Rs 46,600 earned evenly through- out the year.
Prepare Profit and Loss Appropriation A/c, Cash and Bank A/c, Ramu’s Executor’s A/c and Partners capital
accounts for the year ended on 31.12.2017 assuming remaining partners decided not to retain goodwill in
the books.

(Ans.Ramu’s Executor’s Account= 84,900)

(Paduka Illustration 19 Page 9.48)

Q.6 Ram, Shyam and Hari were three partners sharing profit in the ratio 2:2:1. Their balance sheet as at
31.3.2018 was as under:

General reserve 28,000 Cash 4,000

Ram’s capital 30,000 Debtors 7,500
Shyam’s capital 20,000 Stock 28,500
Hari’s capital 10,000 Land and 45,500
Creditors 25,000 Building 15,000
Bills payable 17,500 Motor vehicle 30,000
Goodwill
1,30,500 1,30,500
th
Shyam died on 12 June, 2012. According to the deed, his legal representatives were entitled to:
(a) Balance in capitals A/c.
(b) Share of goodwill valued on the basis of thrice the average profits for the past four completed years.
(c) Share in profits upto the date of death on the basis of average profits for the past four completed years.
(d) Interest on capital @18% p.a.
Profits for the years ending on March 31st of 2015, 2016, 2017 and 2018 respectively were Rs 50,000, Rs
58,000, Rs 40,000 and Rs 52,000 respectively. The firm had taken a motor vehicle but it was not recorded
in the books till date. The market value is now estimated as Rs 1,20,000.
Calculate the amount payable to Shyam’s representatives.
(Ans. Shyam’s executors=1,31,920; Shyam’s share of goodwill=60,000)

(Bharat Illustration 11 Page 574)

Q7. Ram, Ghanshyam and Vrinda were partners in a firm sharing 4:3:1. The firm closes books on 31 st
March. On 1st Feb 2017, Ghanshyam died and it was decided that new ratio will be equal. The deed provide
for the following:

1. His share of goodwill be calculated on the basis of half of profits credited to his account during the
previous four completed years profits were Rs 1,20,000; Rs 80,000; Rs 40,000; Rs 80,000.
2. His share of profit in the year of death was to be computed on the basis of average profit of past 4
years.

Pass necessary journal entry relating to goodwill and profit.

(Ans Gaining is only Vrinda, Ghanshyam Share of profit Rs 60,000)

(TS GRewal ill 56 page 6.62)

Q8. A, B and C were partners sharing ratio 5:3:2. On 31st march 2018 their balance sheet was as follows:

Liabilities Amount Assets Amount

Capitals Goodwill 5,000
A 67,500 Patents 26,000
B 47,500 Machinery 31,200
C 37,000 Investments 3,000
Investment fluctuation reserve 3,500 Stock 10,000
Workmen compensation reserve 3,500 Sundry debtors 12,000
Creditors 51,000 Loan to C 41,000
Cash at bank 5,800
Advertisement exp 1,000
P&L A/c (2017-18) 75,000
2,10,000 2,10,000
st
C died on 1 August 2018. C had withdrawn Rs 5,000 during 2018-19. It was agreed between his executors
and the remaining partners that:

1. Goodwill will be valued at 2.5 year purchase of avg of four completed years profit which were Rs
1,01,000; 14,000; 16,000;
2. C’s share of profit from the beginning of the accounting year till the date of death be calculated on
the basis of avg. of three completed year profit before death.
3. Patents were undervalued by Rs 17,000 machinery was overvalued by Rs 3,200
4. Market value of investment on 1st august was Rs 4,200.

Prepare C’s capital and executor a/c

(Ans: C’s Executor Rs 14,800; C’s share of goodwill and loss Rs 7,000 & Rs (1,000))

(TS Grewal ill 58 page 6.65)

Q9. Ajay, Bhawna and Shreya were partners sharing ratio of 2:2:1. On 1 st july 2019, shreya died. The books
of account are closed on 31st march every year. Sale for year 2018-19 was Rs 5,00,000 and that from 1 st
april to 30th june 2019 was Rs 1,40,000. The rate of profit from past three years were 20% on sales.
Calculate shreya share and pass journal entry.

(Ans share 5,600)

(S Chand page M.74 qno 4)

Q10. Puneet, Pankaj and Pawan were partners sharing 2:2:1 having balance sheet as on 31 st March 2018 as

Liabilities Amount Assets Amount

Creditors 2,00,000 Cash at Bank 40,000
Reserve 1,00,000 Stock 60,000
Capitals Debtors 1,60,000
Puneet 1,20,000 Investments 1,40,000
Pankaj 2,00,000 Furniture 70,000
Pawan 80,000 Building 2,30,000
7,00,000 7,00,000
th
Pawan died on 30 September 2018, where then the deed provide as

1. Deceased partner will be entitled to his share of profit up to date of death calculated on the basis
of previous year profit.
2. He will be entitled to his share of goodwill of the firm calculated on the basis of 3 year purchase of
average of last 4 years profit. Which were Rs 1,60,000; Rs 1,00,000; Rs 80,000; Rs 60,000.
3. Drawings of the deceased partner up to date of death were Rs 20,000
4. Interest on capital is to be allowed at 12% p.a.

Continuing partners agreed that Rs 30,800 will be paid to his legal heir immediately and the balance in any
two equal yearly instalments starting from 30th sept 2019 with interest rate. Show pawan capital a/c,
executors a/c till the settlement of the amount due.

(Ans pawan share of goodwill Rs 60,000; Pawan Executor bal Rs 150,800; profit share Rs 6,000)

(S Chand q. no. 22 page M.150)