DEATH OF A PARTNER

All the problems which arise on the retirement of a partner also arise in case of the death of a partner. However, there are a few additional points which have to be noted.

If the balance of deceased partner’s capital account is not immediately paid in cash, the amount should be transferred to the deceased partner’s Executors Account and not to any Loan Account.

A partner usually retires at the close of an accounting year when his capital account is credited with his share of profits for the year. But a partner’s death may take place any day. Partnership deed may provide that in case of death of a partner during the accounting year, the deceased partner’s capital account will be credited with his share of profits for the period for which he remained alive during the year on the basis of profits of the year preceding the year in which death takes place. Suppose, a partner C getting 1/3 share in profits died on 30 June 2013 and the profits for the year ended 31st March, 2013 have been Rs.18,000. Then C’s Capital Account will be credited with Rs.1500 (Rs.18000x 3/12×1/3 =Rs. 1,500)   for his share of profits for 3 months. Of course, some other basis may also be provided for, or the partnership deed may provide that final accounts will be prepared to ascertain profits for the part of the year.