Madhu and Shyam who shared profits in the ratio of 3
:2 took out a Joint Life Policy on May 14, 1999 for Rs.
60,000. The annual premium was Rs. 8,500. The
surrender value of the policy was: 1999 - NIL; 2000 -
Rs. 4,500; 2001- Rs. 8,000; and 2002 - Rs. 12,000.
Madhu died on Nov 14, 2002 and the amount of the
policy was received on Dec. 1, 2002. The books are
closed on December 31 each year. Give journal
entries assuming that the firm treats premium paid as
asset and maintains a Joint Life Policy Account at its
surrender value. Also prepare Joint Life Policy
account.
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Answer:
A Joint Life Policy (JLP) is an insurance policy which is taken out by the partnership firm on the joint lives of all the partners. The amount of policy is payable by the Insurance Company either on the death or on maturity of policy, whichever is earlier. The firm pays annual premium to the insurer against the policy.
At the time of retirement of a partner, the firm get surrender value of policy in old profit sharing ratio.
In the given question policy value is Rs. 250000 and surrender value is Rs.50000. Therefore, surrender value i.e., Rs. 50000 is credited to all partner's capital A/c in their old ratio.
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