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Accounting Treatment of Joint Life Policy in Case of Death of a Partner

A partnership firm may decide to take a joint life insurance on the lives of all the partners. The firm pays the premium and the amount of the policy is payable to the firm on the death or maturity of the policy holder, whichever is earlier. The objective is to minimize financial hardships during the payment of a large sum of capital on the death of a partner.

 

The accounting treatment for joint life policy maintained is same as discussed in retirement but the firm receives full amount of policy in case of death.
 

Illustration 2

 

X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1. They had taken out a joint life policy for ₹ 1,50,000 at an annual premium of ₹ 12,000 payable on 1st April each year. Z dies on 31st March, 2012. The surrender value of joint life policy on 31st March, 2012 is ₹ 42,000. Give the necessary journal entries in each of the following alternative cases:

  • If the joint life policy is not appearing in the books on that date
  • If the joint life policy is appearing in the books at surrender value on that date
  • If the joint life policy and joint life policy reserve are appearing in the books at surrender value on that date






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