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Reconstitution of Partnership : Death of a Partner

ICSE · Class 12 · Accountancy

Quick revision notes for Reconstitution of Partnership : Death of a Partner — ICSE Class 12 Accountancy. Key concepts, formulas, and definitions for last-minute revision.

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Key Topics to Revise

1

Understanding Death of a Partner vs Retirement

  • Death of a partner legally dissolves the partnership, but the firm continues
  • Unlike retirement (usually planned at year-end), death can occur anytime during the year
  • Retiring partner receives payment directly; deceased partner's share goes to legal heirs/executors
2

Calculation of Deceased Partner's Share of Profit

  • Profit must be calculated from the last balance sheet date to the date of death
  • Two main methods are used: Time basis and Turnover/Sales basis
  • Under time basis, profit is assumed to accrue evenly throughout the year
3

Accounting Treatment of Deceased Partner's Share of Profit

  • Two methods exist: Profit and Loss Suspense Account, or Capital Transfer method
  • Method 1 (P&L Suspense) is used when profit sharing ratio of remaining partners doesn't change
  • Method 2 (Capital Transfer) is used when profit sharing ratio of remaining partners changes
4

Goodwill Adjustment and Valuation

  • Executors are entitled to deceased partner's share of goodwill
  • Goodwill valuation is done according to partnership deed specifications
  • Common methods: Years' purchase of average profit, capitalization method, or fixed amount

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Full Notes

Key Concepts

While retirement is typically plannedThe deceased partner's profit is calculatedWhen the profit sharing ratioWhen the new profit sharing ratioGoodwill is valued according to

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