Reconstitution of Partnership : Death of a Partner — Flashcards

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Death of a partner necessarily dissolves the partnership but the firm continues. The remaining partners continue the business and settle the deceased partner's dues.

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Accounts in the books of the firm are maintained in the same manner as on the retirement of a partner. The main extra task is finding the deceased partner's share of accrued profits or losses.

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Retirement is usually planned and effective from the closing date of an accounting year, while death may occur at any time during the year without notice. Also, a retiring partner receives payment him…

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The two methods are: 1) On the Basis of Time, and 2) On the Basis of Turnover or Sales. These methods are used because closing books exactly on the date of death is often inconvenient.

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The sub-methods are: 1) On the Basis of Last year's Profit, and 2) On the Basis of Average Profit. Under time basis, profit is assumed to accrue evenly over the year.

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Deceased Partner's share of profit = Last year's profit / Average of Profit × (Time till date of death / 12 or 365) × Share of Deceased Partner. The time can be taken in months out of 12 or days out o…

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Deceased partner's share of profit = (Last year's profit / Last year's sales) × Sales till date of death × Share of deceased partner. This method uses the profit-to-sales ratio of the previous year to…

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Average Profit = Total Profits ÷ No. of years. It is calculated from the chosen past years' profits and then used for estimating the deceased partner's share.