Question 25 of 38intermediate🔧 ApplyLong Answer5 marks

How will you compute the amount payable to a deceased partner?

Correct Answer

The amount payable to a deceased partner is computed by preparing the Deceased Partner's Capital Account. The sum due to the legal representatives/executors includes the following items:

Credit Items (Additions):

  1. Credit balance of his capital account – the standing balance as per the last Balance Sheet.
  2. Credit balance of his current account (if any) – accumulated over time.
  3. His share of goodwill – credited through the gaining partners' capital accounts.
  4. His share of accumulated profits (reserves) – distributed in his profit-sharing ratio.
  5. His share in the gain of revaluation of assets and liabilities – from the Revaluation Account.
  6. His share of profit or loss for the intervening period from the last Balance Sheet to the date of death.
  7. Interest on capital (if provided in partnership deed) for the intervening period.

Debit Items (Deductions):

  1. Debit balance of his current account (if any).
  2. His share of accumulated losses (if any).
  3. His share of loss on revaluation of assets and liabilities.
  4. Interest on drawings (if any) from the last Balance Sheet to the date of death.

Calculation of Profit for Intervening Period: Since death may occur any time during the year, the deceased partner's share of profit is calculated on the basis of:

  • Last year's profit, OR
  • Average of past few years' profit, OR
  • On the basis of sales

Formula: Previous Year's Profit × Proportionate Period × Share of Deceased Partner

The final amount payable is the closing credit balance of the Deceased Partner's Capital Account, which is transferred to his Executor's Account.

Exercise: Questions for Practice | Q: 2 | (Page 41)
For More Understanding

Explanation

The textbook context clearly outlines all components of the amount due to a deceased partner. The key distinction from retirement is that death can occur anytime, requiring calculation of profit/loss, interest on capital, and interest on drawings for the intervening period. The context provides the formula for calculating the deceased partner's share of profit based on previous year's profit, proportionate period, and profit-sharing ratio.

Solution Steps

  1. Step 1: Start with credit balance of capital account and current account (if any)

  2. Step 2: Add share of goodwill, accumulated profits/reserves, and gain on revaluation

  3. Step 3: Add share of profit for intervening period using formula: Previous Profit × Time Period × Share Ratio

  4. Step 4: Add interest on capital and deduct interest on drawings for intervening period

  5. Step 5: Deduct share of accumulated losses and loss on revaluation (if any)

  6. Step 6: The closing balance represents amount payable to executor's account

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