Death of a Partner
Complete Chapter Notes
Death of a partner triggers the same accounting steps as retirement, plus two additional ones unique to this chapter: calculating the deceased partner’s share of profit up to the date of death and preparing the Executors’ Account. All concepts, all methods, and all journal entries explained clearly with solved numericals.
Death = Retirement + Two Extra Steps
Every accounting adjustment done on retirement — new ratio, gaining ratio, goodwill, revaluation, reserves, settlement, Balance Sheet — applies here too. Death adds two exclusive steps: (1) calculate and credit the deceased partner’s share of profit from the start of the year to the date of death, and (2) transfer the entire amount due to his Executor’s Account for payment to the legal heirs.
1. Reconstitution of the Firm on Death
When a partner dies, the firm does not automatically dissolve (unless the partnership deed says so). The remaining partners reconstitute the firm and continue the business. The old agreement ends on the date of death and a new agreement begins among the surviving partners.
The rules for calculating the new profit-sharing ratio and the gaining ratio are exactly the same as on retirement:
Solution: B’s share = 3/10. A takes 2/3 of 3/10 = 6/30 = 1/5. C takes 1/3 of 3/10 = 3/30 = 1/10. Converting to thirtiethths: A’s new share = 12/30 + 6/30 = 18/30; C’s new share = 9/30 + 3/30 = 12/30. New ratio = 18 : 12 = 3 : 2. Gaining ratio = A gained 6/30, C gained 3/30 = 2 : 1.
2. Amount Due to the Deceased Partner
The deceased partner’s Capital Account is credited with everything he was entitled to and debited with all amounts due from him, exactly as on retirement. The items include:
| Credits to Capital Account | Debits to Capital Account |
|---|---|
| Opening capital balance | Opening debit balance of Current Account (if any) |
| Share of goodwill (from gaining partners) | Drawings made up to the date of death |
| Share of revaluation profit (old ratio) | Interest on drawings |
| Share of General Reserve and accumulated profits (old ratio) | Share of revaluation loss (old ratio) |
| Interest on capital up to date of death | Share of accumulated losses |
| Share of profit up to the date of death | |
| Opening credit balance of Current Account (if any) |
The final credit balance of the Capital Account is then transferred to the Deceased Partner’s Executor’s Account.
3. Computation of Amount Due — Share of Profit
Since the accounting year is not yet complete on the date of death, the books have not been closed and no profit figure is available. The deceased partner’s share of profit from 1st April to the date of death is therefore estimated by one of two methods.
Method 1 — Time Basis (on the basis of last year’s profit)
Profit is assumed to be earned evenly throughout the year. The deceased partner’s share is calculated on the proportion of the year that has elapsed.
Solution: Months elapsed from 1st April 2026 to 1st August 2026 = 4 months. B’s share of profit = 1,80,000 × 2/6 × 4/12 = ₹20,000.
Method 2 — Turnover Basis (on the basis of sales)
Used when profit is more closely related to sales than to time. The deceased partner’s share is based on the proportion of sales achieved up to the date of death relative to the total sales of the previous year.
Solution: Proportionate profit = 1,50,000 × (1,50,000 / 5,00,000) = ₹45,000. B’s share = 45,000 × 2/5 = ₹18,000.
Solution: Average profit = (84,000 + 96,000 + 1,20,000) ÷ 3 = ₹1,00,000. Months elapsed from 1st April to 30th September = 6. Estimated profit for 6 months = 1,00,000 × 6/12 = ₹50,000. Share of R = 50,000 × 1/4 = ₹12,500, credited through the P&L Suspense Account. When the deed specifies average profit, always use it in place of last year’s profit in the time-basis formula.
4. Share of Goodwill (AS-26)
The deceased partner is entitled to his share of goodwill because he contributed to building the firm’s reputation. The treatment is the same as on retirement:
If goodwill already appears in the books, it is first written off among all partners (including the deceased) in the old ratio: All Partners’ Capital A/cs Dr. → To Goodwill A/c.
Working: Q’s share of goodwill = 1,00,000 × 2/5 = ₹40,000. Gaining ratio: P = 1/2 − 2/5 = 1/10; R = 1/2 − 1/5 = 3/10. Gaining ratio = 1 : 3.
| Date | Particulars | L.F. | Dr. (₹) | Cr. (₹) |
|---|---|---|---|---|
| P’s Capital A/c Dr. | 10,000 | |||
| R’s Capital A/c Dr. | 30,000 | |||
| To Q’s Capital A/c | 40,000 | |||
| (Being Q’s share of goodwill credited to his Capital Account; P and R contribute in the gaining ratio 1 : 3) | ||||
5. Revaluation of Assets and Reassessment of Liabilities
A Revaluation Account is prepared on the same lines as on retirement. The profit or loss on revaluation is shared by all partners, including the deceased, in the old ratio. This is because the change in values took place while the deceased partner was still a partner.
| Dr. — Particulars / ₹ | Cr. — Particulars / ₹ | ||
|---|---|---|---|
| To Bad Debts A/c | 5,000 | By Machinery A/c | 30,000 |
| To Stock A/c | 4,000 | ||
| To Profit transferred to Capital A/cs: A (3/6) 10,500 B (2/6) 7,000 C (1/6) 3,500 | 21,000 | ||
| Total | 30,000 | Total | 30,000 |
B’s share of revaluation profit = ₹7,000, credited to his Capital Account before it is transferred to the Executor.
6. Preparation of the Deceased Partner’s Capital Account
After all adjustments, the net credit balance of the Capital Account is the total amount due to the deceased partner. This balance is transferred to the Executor’s Account by the following entry:
Solution: Interest on capital = 3,00,000 × 9/100 × 4/12 = ₹9,000 (credited to his Capital Account). Interest on drawings = 20,000 × 6/100 × 2/12 = ₹200 (debited to his Capital Account). Both items are always calculated only up to the date of death, never for the full year.
| Dr. — Particulars / ₹ | Cr. — Particulars / ₹ | ||
|---|---|---|---|
| To Drawings A/c | 12,000 | By Balance b/d | 2,00,000 |
| To B’s Executor’s A/c (balance transferred) | 2,77,000 | By Interest on Capital A/c | 8,000 |
| By General Reserve A/c | 14,000 | ||
| By Revaluation Profit A/c | 7,000 | ||
| By Goodwill (gaining partners) | 40,000 | ||
| By P&L Suspense A/c (share of profit) | 20,000 | ||
| Total | 2,89,000 | Total | 2,89,000 |
7. Settlement of Amount Due to Executors
The amount due to the executors can be settled in the same three ways as on retirement:
Paid Immediately in Full
Executor’s A/c Dr. → To Bank A/c. The Executor’s Account is closed and no liability remains.
Paid in Instalments
Partly paid immediately; the balance remains in the Executor’s Account with interest (at 6% p.a. if not agreed) under Section 37.
Left as a Loan
The entire amount is kept as a loan bearing interest. The Executor’s Account is treated exactly like the retiring partner’s Loan Account.
| Year Ended | Opening Balance (₹) | Interest @ 6% (₹) | Amount Paid (₹) | Closing Balance (₹) |
|---|---|---|---|---|
| Year 1 | 2,00,000 | 12,000 | 1,12,000 (1,00,000 + 12,000) | 1,00,000 |
| Year 2 | 1,00,000 | 6,000 | 1,06,000 (1,00,000 + 6,000) | Nil |
Note: Interest is calculated on the outstanding balance, exactly like the Loan Account of a retiring partner, so the interest reduces every year while the principal instalment stays equal.
8. Preparation of the Balance Sheet
After all adjustments, the new Balance Sheet is prepared. The key items specific to a death question are:
Liabilities Side
The Executor’s Account (amount due but unpaid) appears as a liability until it is fully settled.
Assets Side
The Profit & Loss Suspense Account (share of profit credited to the deceased) appears as an asset.
Capital Accounts
Only the surviving partners’ closing capital balances appear after all adjustments.
Revalued Assets
All assets and liabilities appear at their revalued figures in the new Balance Sheet.
9. Retirement vs Death — Key Differences
| Basis | Retirement | Death |
|---|---|---|
| Cause | Voluntary — partner decides to leave | Involuntary — death of a partner |
| Date | A specific agreed date | Date of death (may fall on any day of the year) |
| Share of profit | Up to the retirement date if the year is not complete | Always calculated for the period from the start of the year to the date of death |
| Method of profit calculation | Time basis or actual calculation | Time basis or turnover (sales) basis |
| Account opened | Retiring Partner’s Loan Account | Deceased Partner’s Executor’s Account |
| P&L Suspense A/c | Not typically required | Always prepared for the share of profit; appears on the asset side of the Balance Sheet |
| Payment to | The retiring partner himself | The legal heirs / executors of the deceased partner |
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20 MCQs — Death of a Partner
Mixed difficulty — reconstitution, share of profit methods, goodwill, Executor’s Account and CUET-level numericals in Q17–Q20.
Chapter 5 — Live Quiz
20 questions · Death of a Partner · One at a time · Instant feedback
