R and S were partners. The partnership deed provided that (i) The accounts be made upto March 31, each year. (ii) The profits divided as R – ½ , S – ⅓, and Reserve – ⅙.(iii) In the event of death of a partner, his representative be entitled to (1) The capital to his credit at the date of death. (2) His proportion of profits to the date of death based on the average profits of the last three completed years. (3) By way of goodwill his proportion of the total profits for the three preceeding years. On 31.3.2016 the ledger balances were Rs. Rs.R’s Capital 90,000 Bills Receivable20,000S’s Capital 60,000 Investments 50,000Reserve 30,000 Cash 1,40,000Creditors 30,000 2,10,000 2,10,000Profits for the year 2013-14 : Rs. 42,000, 2014-15 : Rs. 39,000, 2015-16 : Rs. 45,000 Mr. S died on 1.7.2016. Show the account of S’s executors
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Answer:
1. 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 is entitled to get his share in the firm as per the provision of a partnership agreement. His share in the firm is calculated in the same manner as in the case of a retiring partner.
2. Accounting Treatment of Deceased Partners’ Share in Profits If a partner dies on any date after the date of the balance sheet, then his share of profit is calculated from the beginning of the year to the date of death on the basis of time or sales. When share of profit is calculated on the basis of time, it may be on the basis of previous years’ profit or average profit of past years.