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Book-Keeping and Accountancy · Class 12 Commerce

Ch 5Reconstitution of Partnership (Death of Partner) — Class 12 Book-Keeping and Accountancy, concept-first.

A partnership firm changes its composition whenever a partner joins, retires, or passes away — each such change is called a reconstitution of the partnership. This chapter deals specifically with the death of a partner: an event that, unlike retirement, is involuntary and can occur on ANY date during the accounting yea…

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Key concepts

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Meaning and New Ratio on Death of a Partner

The death of a partner reconstitutes the firm — unlike retirement, it is involuntary and can occur on any date during the accounting year.

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Chapter contents

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1

Meaning of Reconstitution on the Death of a Partner

A partnership firm changes its composition whenever a partner joins, retires, or passes away — each such change is called a reconstitution of the partnership.

2

New Profit-Sharing Ratio and Gaining Ratio on Death of a Partner

The first step after a partner's death is to fix the new profit-sharing ratio in which the continuing partners will share profits and losses going forward.

3

Treatment of Goodwill on the Death of a Partner

Goodwill reflects the value of the firm's reputation and earning capacity — value that has often been built up partly through the efforts of the very partner who has now died.

4

Revaluation of Assets and Liabilities, and Adjustment of Accumulated Profits and Reserves

Just as on admission or retirement, assets and liabilities are revalued to their true current worth at the date of a partner's death, so that the deceased partner's estate receives (or bears) a fair s…

5

Deceased Partner's Share of Profit up to the Date of Death

Because death can occur on any date, the firm's actual profit for the full accounting year is not yet known when a partner dies partway through it.

6

Interest on Capital, Drawings and Settlement of the Deceased Partner's Account

Besides goodwill, revaluation, reserves and the profit share up to death, two further items are usually brought into the deceased partner's Capital Account before it can be finally closed:

7

Distinguishing Retirement of a Partner from Death of a Partner

Retirement and death both end a partner's membership of the firm and trigger broadly similar adjustments — goodwill, revaluation, reserves, and settlement of the amount due — but the two events differ…

Exercises

+Show 7 questions7 questions
  1. Q6Distinguish between the retirement of a partner and the death of a partner, with reference to how each affects the accounting treatment in t…Free
  2. Q7On the death of a partner, the deceased partner's estimated share of profit for the period up to the date of death is recorded by debiting w…Free
  3. Q8Where the partnership deed is silent on the rate of interest payable to a deceased partner's executor on the amount remaining unpaid, the In…Free
  4. Q9On the death of C, a partner in the firm of A, B and C (sharing profits in the ratio 5:3:2), the Balance Sheet showed a General Reserve of ₹…Preview
  5. Q10The amount due to a deceased partner's executor after all adjustments is ₹1,20,000. The executor is paid ₹40,000 immediately in cash, and th…Preview
  6. Q11Distinguish between the Time Basis and the Turnover (Sales) Basis of ascertaining a deceased partner's share of profit up to the date of dea…Preview
  7. Q12In the Balance Sheet of a reconstituted firm prepared after a partner's death, on which side does the Executor's Loan Account appear, and ho…Preview

Sample & Board Papers

Sample papers and previous-year board questions for this subject.

+Show 10 questions10 questions
  1. Q1Death is a compulsory ______. (a) Dissolution (b) Admission (c) Retirement (d) Winding-upPreview
  2. Q2Anil, Sunil and Mohit were partners sharing profits and losses in the proportion of their capital Their Balance Sheet as on 31st March, 2019…Preview
  3. Q3Death is a compulsory ______. (a) Dissolution (b) Admission (c) Retirement (d) Winding-upPreview
  4. Q4Arun, Varun and Karun were partners in a business sharing profits and losses in the ratio of 2 : 2: 1 respectively. Their Balance sheet as o…Preview
  5. Q5Give a word/term/phrase which can substitute the following statement: A person who represents the deceased partner.Preview
  6. Q6Suresh, Naresh and Paresh were equal partners. On 31 st March, 2019 their Balance sheet was as follows: | Balance Sheet as on 31 st March, 2…Preview
  7. Q7Deceased partner's executor’s account is shown on the ______ side of balance sheet.Preview
  8. Q8Mahendra, Surendra and Narendra were partners sharing profits and losses in the ratio of 5 : 3 : 2 respectively. Their Balance Sheet as on 3…Preview
  9. Q9Profit and loss suspense account is shown in the new balance sheet on ______ side. (a) Debit (b) Credit (c) Asset (d) LiabilitiesPreview
  10. Q10Mahendra, Jitendra, and Hitendra are in partnership sharing profits and losses in the ratio of 3 : 2 : 1 respectively. Their Balance Sheet a…Preview

More questions

+Show 5 questions5 questions
  1. Example 1A, B and C are partners in a firm sharing profits and losses in the ratio 5:3:2. The firm closes its books every year on 31st March. C dies…Free
  2. Example 2P, Q and R are partners sharing profits in the ratio 4:3:3. The firm's books close on 31st March every year. R dies on 30th June 2024. The f…Free
  3. Example 3X, Y and Z are partners sharing profits in the ratio 3:2:1. Z dies. The partnership deed and the continuing partners have made no separate a…Preview
  4. Example 4L, M and N are partners sharing profits in the ratio 3:2:1. On N's death, the following revaluation is agreed: Land and Building is apprecia…Preview
  5. Example 5P, Q and R are partners sharing profits and losses in the ratio 3:2:1. Their books close every year on 31st March. R dies on 30th September…Preview