Death of a partner

The essentials

The death of a partner is treated much like retirement, except that the amount due is paid to his legal representatives, called executors. Because death can occur on any day, the firm must also calculate the deceased partner's share of profit from the last balance sheet date to the date of death. The deceased partner's capital account is prepared and its balance is transferred to the Executor's Account, which is settled in cash or by instalments.

Key points

• Amount due: capital, share of goodwill, reserves, revaluation profit, share of profit to date of death, interest on capital; less drawings and share of losses.
• Profit to date of death on the time basis = Last year's (or average) profit × Months elapsed ÷ 12 × Deceased's share.
• Profit on the sales basis = Sales up to date of death × Rate of profit on sales × Deceased's share.
• Entry for share of profit: Profit and Loss Suspense A/c Dr; To Deceased Partner's Capital A/c (or debited to continuing partners in the gaining ratio).
• Balance transferred: Deceased Partner's Capital A/c Dr; To Executor's A/c.

Exam tips

Count months carefully from the start of the accounting year to the date of death. Use the rate of gross or net profit on sales exactly as the question specifies.

Common mistakes

• Calculating profit for the whole year instead of up to the date of death.
• Crediting the amount to the deceased partner's Loan Account instead of the Executor's Account.