Legal Entitlements and Responsibilities in the Event of a Partner's Death
In the event of a partner's death, the legal representative of the deceased partner is entitled to obtain various amounts from the firm, such as capital, share of goodwill, profits, reserves, and more. The deceased partner's capital will be charged with certain amounts as well. This includes calculations of profit up to the date of death and adjustments of joint life policies and individual policies. Understanding these legal entitlements and responsibilities is crucial for managing the affairs of the partnership upon the death of a partner.
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In the event of death of a partner the legal representative of the deceased partner will be entitled to get from the firm, amounts due on account of the following: Capital standing to the credit of the deceased partner on the date of his death Share of Goodwill Profit on revaluation of assets and liabilities Share out of reserves and other undistributed profits Share in the profits of the firm earned from the date of beginning of the year to the date of his death Interest on capital from the beginning of the year to the date of his death Share out of proceeds of joint life ppolicies
The deceased partners capital will be charged with his share of the following amounts: Drawings and interest on drawings from the beginning of the accounting year to the date of death Loss on revaluation of assets and liabilities Loss in the business from the beginning of the accounting year till the date of his death.
Calculation of profit upto the date of death The deceased partner is entitled to his share in the profits made by the firm from the date of the last balance sheet to the date of the partner s death. It can be calculated taking the previous years profits or the average profits of a certain number of past years. The accounting entry for transferring the deceased partners share of accrued profits/loss to his capital account will be: a) For profits P&L Suspense A/c Dr. To Deceased partner s capital A/c
For loss Deceased partner s capital A/c To P&L A/c suspense A/c The balance in the P&L suspense account should appear on the assets side of the balance sheet or the liabilities side of the balance sheet of the reconstituted firm. Adjustment of Joint Life Policy/Individual Policies If the policy is joint life policy, on the death of any one of the partner the entire policy amount will be available from the insurer to the firm. The entire policy amount should be distributed among all the partners in the old ratio Joint Life Policy A/c Dr. To Partner s Capital A/c
If it is individual policies on the death of a partner, the policy amount of only the deceased partner will be available to the firm. The amount received on the policy of deceased partner and the deceased partner s share in the surrender value of policies surviving partner s should be taken into account. The full value of policy of deceased partner and the deceased partner s share in the surrender value of surviving partner s policies will be debited to Individual Policies A/c The surviving partner s capital accounts will also be credited with their respective shares of the policy amount of the deceased partner.
Settlement of balance due to deceased partner: The amount due to the deceased partner has to be paid to his executors or legal representatives. The balance in the capital account of deceased partner is closed by transfer to his executors account. The payment to the executors may be made immediately or in installments or the amount may be transferred to Executor s Loan Account.
