Maharashtra Board Class 12 Book Keeping and Accountancy Chapter 5 Death of Partner PDF Download

Reconstitution Of Partnership (Death Of Partner)

Meaning

A partner will cease to be a partner on his death. Death is considered as compulsory retirement. Partnership business may be continued by surviving partners if the partnership firm makes provision in the Partnership Deed. Partners make arrangement to settle the account of the deceased partner with his legal representative. The legal representative will be entitled, at their choice, to interest at 6% per annum on the amount due. This interest is calculated from the date of death to the date of payment.

Teacher's Note

When a partner dies, the partnership business does not stop automatically. The remaining partners can continue the business if the partnership deed allows it. This is like when one shop owner in a family business dies, the other family members continue running the shop together.

Exam Trick

Remember: Death of a partner = Compulsory retirement. The business continues but the dead partner's legal representative (called executor) gets money from the business. Think of it like an insurance claim where the family gets the money.

Points To Remember

Death of a partner is compulsory retirement.
The surviving partners can continue the business.
The deceased partner's family gets their share from the business.
Interest is given at 6% per annum on the amount due.
All accounts are settled with legal representative called executor.

New Profit Sharing Ratio

On death of a partner, the profit sharing ratio of the remaining partners changes. The profit sharing ratio of remaining partners increases. This happens because the profit sharing of the deceased partner gets divided and received by the remaining partners.

Teacher's Note

When one partner dies, the other partners get more profit share. For example, if three partners share profits equally (1:1:1), and one dies, the two remaining partners now share profits in ratio 1:1 instead of 1:1:1. They get more profit now.

Exam Trick

Remember: Dead partner's share = Divided among surviving partners. So remaining partners get bigger share. More partners die = More profit for survivors. It is like sharing a pizza - when one person leaves, others get bigger pieces.

Points To Remember

Remaining partners' profit share increases after death.
The dead partner's share is divided among survivors.
New ratio will always be more than old ratio for each survivor.
This change happens on the date of death.
The change benefits the surviving partners.

Gain Ratio Or Benefit Ratio

Benefit or Gain Ratio is a ratio by which surviving partners are benefited due to death of a partner. The extra share which they are getting is added in their old share. Such extra share which they are getting is called as "Gain." The ratio is called as "Gain Ratio."

This ratio is normally used to write off the goodwill created or raised to the extent of retiring partner share only. It is calculated by using the following formula.

Gain Ratio = New Ratio - Old Ratio

Teacher's Note

Gain ratio shows how much extra profit each surviving partner will get. If a partner's old share was 1/3 and new share becomes 1/2, then gain is 1/2 - 1/3 = 1/6. This is like getting extra commission when a senior colleague leaves your job.

Exam Trick

Remember: Gain Ratio = New Ratio MINUS Old Ratio. Always subtract old from new. It shows the bonus or extra share each survivor gets. More the gain, more benefit they get.

Points To Remember

Gain ratio shows extra benefit to surviving partners.
Formula: Gain Ratio = New Ratio - Old Ratio.
It is used to write off goodwill of dead partner.
Each surviving partner will have a gain ratio.
Gain ratio must always be positive.

Revaluation Of Assets And Liabilities

The assets and liabilities of the partnership firm are revalued on the death of a partner. The benefit arising out of it is given to the representative of the deceased partner. The effects of revaluation of assets and liabilities are shown in a Revaluation Account. These are the same as given in retirement.

The Profit or loss on revaluation is transferred to the deceased partner's capital account to the extent of his share.

Teacher's Note

When a partner dies, we check if the business is worth more or less than shown in books. If the building was bought for 10 lakhs but is now worth 15 lakhs, this extra 5 lakhs profit goes to the dead partner's account. This is fair because the dead partner contributed to this increase.

Exam Trick

Remember: Revaluation = Checking real value of assets. Profit on revaluation = CREDIT to dead partner's account in their share. Loss on revaluation = DEBIT from dead partner's account. All in their profit sharing ratio.

Points To Remember

Assets and liabilities are checked again when partner dies.
Revaluation Account shows the change in value.
Profit on revaluation goes to dead partner's share.
Loss on revaluation comes from dead partner's share.
Distribution is done in the old profit sharing ratio.

Amount Due To Deceased Partner's Executor / Nominee / Administrator

The capital of the deceased partner is calculated on the basis of the balance of capital of the deceased partner shown in the last balance sheet. We also add the share of profit or loss on revaluation. We add the general reserve amount. We add the accumulated profit or loss. We add the share of goodwill. We add the salary of the partner. We add the interest on capital. We add the interest on drawings. We add the profit up to the date of death.

Teacher's Note

The family of the dead partner gets money for many things - their capital, their share of profits, goodwill, and more. We calculate all these and add them together. This is like calculating total money owed to someone.

Exam Trick

Remember: Amount due = Capital + Reserves + Profits + Goodwill + Salary + Interest - Drawings. It is like a complete settlement of all accounts. Check the partnership deed for exact items to include.

Points To Remember

Capital balance from last balance sheet is included.
Share of profits up to death date is added.
Share of reserves and goodwill is included.
Salary and interest on capital are added if payable.
Drawings are subtracted from the total amount due.

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