Book Keeping & Accountancy Answer in One Sentence

Profit of the deceased partner, up to the date of his death, is transferred to his Legal Heir’s/Executor’s Account.

After the death of a partner, the business is not able to get any kind of services from the deceased partner and so we can say that the death of a partner is like a compulsory retirement.

On the death of a partner general reserve is distributed among all partners in their old profit and loss ratio.

General reserve is distributed on the death of a partner in their old profit sharing ratio.

The profit-sharing ratio which is acquired by the surviving or continuing partners on account of the death of any partner is called gain ratio or benefit ratio.

On the death of a partner, a debit balance of the Profit and Loss Account is adjusted and transferred to all Partners’ Capital/Current Accounts in their old profit sharing ratio.

The share of the deceased partner in accrued profit is calculated on the assumed basis of average profit of the past few years and credited to the Deceased Partner’s Capital Account.

The amount finally due to the deceased partner is settled by transferring the same amount to his Legal Heir or Representative’s Loan Account and the same is paid to the legal heir or representative or executor after completing all legal formalities.

The amount due to a deceased partner is calculated by adding his share in general reserve, past accumulated profit, goodwill, profit on revaluation of assets and liabilities, interest on capital, salary payable, etc. in the opening balance of capital and by deducting the share in the past accumulated loss, revaluation loss, drawings and interest on drawings from his capital balance.

On the death of a partner, balance in general reserve is transferred to all Partners’ Capital Accounts or Current Accounts in their old profit sharing ratio.

The gain ratio is usually calculated at the time of retirement or death of a partner.

The gain ratio is calculated by using the formula:
Gain Ratio = New Ratio – Old Ratio.