A detail about the death of the partner and Calculations of calculating his share.

1. Death of partner

2. Death of partner
 For a partnership which comprises of more
than 2 partners , financial date associated
with the death of a partners determine. This
date incorporates the inclination
(disposition) of the interest of the dead
partner and distribution of shares of profits
or losses to the dead.
 According to the Indian partnership Act,
1932. under a contract between the
partners of the enterprise is not dissolved
by the death of a partner, the estate of a
dead partner is not responsible for any act
of the enterprise done after his death.

3. The according treatment in the occurrence of
death of a partner is :
 Similar to that , when a partner retires and that in
case of decreased partner his belonging is
transferred to his legal enforcers and settled in a
similar way as that of the partner who retires
 However , there is one primary distinction , the
retirement usually takes place during the closure of
an accounting period or financial year, the death of
a partner may take place any time
 Therefore, in the case of a partner, his right shall
also incorporate his share of gains or loss, interest
on drawings interest on capital from the last date of
the balance sheet to the date of his death of these
the main issue associates to the computation of
profits for a moderate period

4. Conti…
 Since , it is contemplated burdensome to
close the books and outline final a/c , for the
period , the dead partner’s share of profit
may be computed on the ground of
previous year’s gain or on the base of
sales.

5. Treatments done in accounting books on
the death of a partner
(1)Linking death of a partner with retirement of a partner
 common accounting treatment in case of death of a
partner:
(a) partners’ capital balance
(b) existing goodwill
(c) partner’s share in the present value of firm’s
goodwill
(d) Revaluation profit or loss
(e) Reserves, surplus and fictitious assets
(f) Drawings made by the partner
(g) Asset / liability taken over by a partner
(h) partner’s loan given on assets side or liabilities
side

6. Conti…
(2) Special accounting treatments required in case of
death of a partner only:
 Salary/commission to a partner:
(a) monthly salary x time period
(b) commission as per the agreement for this
period only (if any).
(time period = period from the date of last
balance sheet to the date of death)
 Interest on capital:
(a) capital balance as per the last
balance sheet x rate of int. /100x time period/12

7.  Interest on Drawings:
We’ll use the rules of Interest on Drawings learned
earlier and of course, keep in mind the ‘Time Period’.
 Interest on Loan
Amount of Loan as per the last Balance Sheet x Rate o
Int./100x Time Period/12
 Share in current year’s Profits
i. To compute the deceased partner’s share in
estimated profits there are following two
approaches/basis:
ii. Time Basis – Under this approach his profit
share for the current year is computed on the
basis of last year’s profit or last few
years’ average profits.
iii. Formula – last year’s profits x time period/12
x deceased partner’s share

8. Or
Average Profits x Time Period/12 x Deceased
Partner’s Share
 Turnover Basis– In this case, his profit share for the
current year is estimated using last year’s sales and
last year’s profits.
 Formula: Step 1. Compute Profits % of last year:
Last Year’s Profit/Last Year’s Sales x100
 Step 2. Firm’s estimated profit till the date of
death:
Current Year’s Sales up to the date of
death x Profit %
 Step 3. Decease Partner’s share
Firm’s Profit as per Step 2 x Deceased Partner’s ratio

9. Dissolution of Partnership:
Dissolution of partnership firm is a process in which
relationship between partners of firm is dissolved or
terminated. If a relationship between all the partners of
firm is dissolved then it is known as dissolution of firm.
In case of dissolution of partnership of firm, the firm
ceases to exist.
Modes of Dissolution of a Partnership firm:
Dissolution by Notice
If the partnership business is at will, any one partner can,
through a simple and advanced notice, dissolve a
partnership. The notice should specify the date on
which the dissolution comes into force. Such a
dissolution can be initiated by any individual partner
after proper notice is issued.
Case : Banarsi Das Vs Kanshi Ram , AIR (1963)

10. Dissolution Due to Contingencies
There are certain situations wherein the partnership
firm can be dissolved:
◦ On account of the end of a project/ endeavour where
the formation of the firm undertakes.
◦ By the death of a partner.
◦ By the adjudication of a partner as an insolvent or one
or more partners.
◦ By the expiry of a partnership period. Some firms are
started with a clear view of the tenure for which the
partnership will exist. Such partnerships will, naturally,
come to an end once the period of partnership is
complete.
The contingencies may vary depending upon the
clauses specified in the agreement prepared at
the time of forming the partnership. The
agreement should specify the terms on which the
dissolution may take place under such
circumstances.

11. Compulsory Dissolution
Certain occurrences can make the dissolution of a
firm compulsory. For example, by the occurrence of
any event judged as illegal and thus, making it
difficult for the partnership firm to continue its tenure
Dissolution by Court
A partnership business involves working with various
individuals at a time. Even if they are friends and
relatives, there are instances where one or more
partner may find it not suitable for him or her under
circumstances to continue. In these cases, the court
may also dissolve the firm. Let us look at some of
the reasons why or how the partnership firms can
be dissolved through court cases. Do note,
however, that for this to be possible, the partnership
deed should be registered.
Case: whitwell VS Arthur , 35 beav .140

12. Due to Mental Instability
 When a partner becomes mentally unstable/incapacitated
 A business venture cannot proceed in case a partner is unable
to deal with the pressures of the job at hand because of mental
instability. In such instances, the other partner can file a case to
dissolve the partnership firm.
 Illness or incapacity of a partner due to medical or any other
reasons can also result in dissolution of partnership through a
court case. The partner, other than the one mentally unstable,
needs to file the request for dissolution of partnership through
the court.
Due to Misconduct
 The other reason for dissolution by the court is misconduct. Any
partner/partners in the partnership misbehaving with others or
not heeding to the signed agreement of the partnership will find
themselves ousted by their partners through a court case.
 The agreement that the partner’s sign is a legally binding one,
and any partner who misses out on any particular clause, and
even after giving warnings, are not heeding to it, might face the
court. The dissolution of the partnership firm may take place
through court interference in such instances.

13. Consequences of Dissolution:
Continuing Authority of Partners
The partners need to wind up the business. For this, they need
to carry out some functions, perform some acts etc. The
partners will continue to have the authority to perform such
acts as necessary. And the firm is bound by these actions of
the partners. Insolvent partners, partners of unsound mind
etc. are the exceptions here.
Continuing Liabilities of Partners
Public notice of the dissolution of the firm has to be given by
the firm. If such a notice is not given, all the partners continue
to be liable for the actions of the other partners with respect to
the firm.
◦ Right to Return of Premium
In certain cases, a partner has to pay a premium to the
partners to be introduced in the firm. But if a partnership for a
fixed term is terminated before the fixed period then the
partner can demand that a proportionate portion of this
premium be paid back to him. This will not apply if:
◦ The dissolution was by mutual consent
◦ Caused by the misconduct of the partner that paid the premium

14.  Settlement of Accounts
 Section 48 deals with the settlement of accounts after
the dissolution of the partnership firm. Let us see the
rules,
 The losses of the firm and the deficiencies of the
capital will be first paid out, particularly from
undistributed profits. If these fall short, then we shall
utilize capital accounts and lastly, the partners will
contribute the funds in their share profit ratios.

 The assets of the firm and the contributions of the
partners will be applied in the following order,
◦ Payment to creditors (outside creditors only)
◦ Repayment of Loans and advances of partners
◦ Payment of partner’s capital accounts
◦ Then divide remaining profits in the profit-sharing ratio

15.  If one of the partners is insolvent, then
the settlement is done in the following
way as per the case study of Garner vs.
Murray

 Solvent partners contribute their share of
the deficiency if any
 The assets of the firm are distributed
only amongst the solvent partners
 The deficiency of the insolvent partner is
distributed among the solvent partner,
specifically in their capital ratios