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Accounting Treatment

On the death of a partner, the accounting treatment regarding goodwill, revaluation of assets and reassessment of liabilities, accumulated reserves and undistributed profit are similar to that as on the retirement of a partner.


When the partner dies, the amount payable to him/her is paid to his/her legal representatives. The representatives are entitled to the following:

  • The amount standing to the credit of the Capital account of the deceased partner
  • Interest on capital, if provided in the partnership deed up to the date of death
  • Share of goodwill of the firm
  • Share of undistributed profit or reserves
  • Share of profit on the revaluation of assets and liabilities
  • Share of profit up to the date of death
  • Share of joint life policy

The following amounts are debited to the capital account of the deceased partner:

  • Drawings
  • Interest on drawings
  • Share of loss on the revaluation of assets and liabilities
  • Share of loss that have occurred till the date of his/her death

The above adjustments are made in the Capital Account of the deceased partner and then, the balance in the Capital Account is transferred to deceased partner’s executor’s account.

The payment of the amount of the deceased partner depends on the agreement. In the absence of an agreement, the legal representative of a deceased partner is entitled to interest @ 6% p.a. on the amount due from the date of death till the date of final payment.


Illustrator 1


X, Y and Z are partners in a firm sharing profits in the ratio 5 : 3 : 2. On 31st March, 2014, their Balance Sheet was as under:

X died on 1st October, 2011. It was agreed between his executor and the remaining partners that:

  • Goodwill is to be valued at 2½ years’ purchase of the average profits of the last four years, which were: 2010– 2011: ₹ 50,000; 2011 – 2012: ₹ 40,000; 2012 – 2013: ₹ 80,000 and 2013 -2014: ₹ 70,000.
  • Building is valued at ₹ 1,40,000 ,Plant at ₹ 92,000 and Stock at ₹ 64,000.
  • Profit for the year 2013 – 2014 to be taken as having accrued at the same rate as that of the previous year.
  • Interest on capital is provided at 9% p.a.
  • On 1st October, 2014, Drawings account of X, Y and Z showed a balance of ₹ 40,000, ₹ 20,000 and ₹ 10,000 respectively.
  • ₹ 51,900 is to be paid immediately to his executor and the balance is transferred to his Executor’s Loan account.
  • Y and Z decided to show their share of reserves in the Balance Sheet.


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