CMA Intermediate · Financial Accounting

Death of a Partner: CMA Inter Financial Accounting Chapter Guide

Death of a partner ends the old partnership and the firm settles with the deceased's legal representatives. You find profit and loss up to the date of death, value goodwill and assets, adjust the policy, drawings and interest, then credit all dues to the deceased's capital account and transfer the balance to the executor's account.

What this chapter covers

This chapter deals with what happens in the books when a partner dies during the year. The firm must work out what the deceased is owed on the date of death and pay it to the executor or legal representative. Most of the work is arranging familiar adjustments in the right order.

The chapter builds on your earlier partnership work: admission, retirement, goodwill, revaluation and the profit sharing ratio. Death is close to retirement. The main difference is that the person who is paid is the executor, and the exit date is fixed by the death, not chosen by the partners. Profit up to that date often has to be estimated.

It also connects to the rest of Financial Accounting. You prepare a revaluation account, a partners' capital account and a balance sheet, and you may need to apply the rules for interest on capital and drawings. If you are strong here, the same skills help you in retirement and dissolution questions.

Death of a partner is a favourite for numerical questions because one problem tests many things together: profit up to the date of death, goodwill, revaluation, insurance policy and the final balance sheet. A solid method earns step marks even if one figure goes wrong. Each calculation is also a standalone MCQ trap, so practising the chapter helps in Section A as well as in the 14-mark written answers.

Death of Partner: topics in the order to study them

1Death of a Partner: Introduction and SettlementStart here to learn what the firm owes the deceased's estate, who receives it, and how the partnership agreement and the date of death govern the settlement.
2Calculation of Profit and Loss up to Date of DeathYou need the share of profit up to the date of death before you can build the deceased's account, so learn the time-based and sales-based methods early.
3Goodwill and Revaluation on Death of a PartnerGoodwill and revaluation change the amount due to the deceased, so they come once you know how the account is structured.
4Adjustments: Joint Life Policy and Drawings and InterestThese are the remaining credits and debits to the capital account, and they need goodwill and revaluation understood first.
5Deceased Partner's Capital Account and Executor's AccountNow you bring every item together into one account and transfer the final balance to the executor, including how it is paid.
6Final Accounts and Balance Sheet after DeathFinish with the full problem, ending in the balance sheet of the continuing firm. It tests everything you have learned in the earlier topics.

How to prepare Death of Partner

Treat this chapter as a fixed sequence of entries. Once you know the order, every question becomes the same routine with different numbers.

Read the question for the date of death, the profit sharing ratio, and any clause in the partnership deed. Underline them before you start.
Write the standard list of items for the deceased's capital account, with the side for each. - Credit side: opening capital, share of reserves and undistributed profits, share of profit up to death, share of goodwill, interest on capital, share of revaluation profit, and his share of the joint life policy reserve (or of the surplus if no reserve is kept), all in the old ratio. - Debit side: drawings, interest on drawings, share of loss up to death, and share of revaluation loss. The sum assured is not credited to the deceased. It is received in full: debit Bank, credit Joint Life Policy account. The deceased is credited only with his share of the reserve or surplus.
Practise the profit up to the date of death on both bases, time apportionment and sales proportion, until you can do it without notes.
Do goodwill problems separately, covering both treatments: goodwill raised in the books in the old ratio and written off in the new ratio, and goodwill adjusted through the gaining partners' capital accounts. Also practise the first step when goodwill already appears in the books, which is to write it off in the old ratio.
Solve at least five full problems end to end: revaluation account, capital accounts, the deceased's account, the executor's account and the balance sheet. Check that the balance sheet tallies.
Write answers in a clean layout with working notes labelled, since step marks depend on visible workings.
Attempt the MCQs on the chapter in a timed set and note every wrong option you picked, then revise those points.

Common mistakes in Death of Partner

Using the wrong date for profit, interest and drawings.
Fix: Mark the date of death at the top and count months or days only up to that date.
Sharing revaluation or goodwill in the wrong ratio.
Fix: Write the three ratios in a small box first. Use the old ratio for revaluation and reserves. When goodwill is adjusted through capital accounts, debit the gaining partners' capital accounts in the gaining ratio.
Forgetting the joint life policy treatment.
Fix: Keep it on your checklist and follow the question's instruction on policy reserve, surrender value or sum assured.
Leaving out interest on drawings or interest on capital for the deceased.
Fix: Use a fixed template with a line for each of those items so none is missed.
Showing the executor's balance incorrectly in the balance sheet.
Fix: Transfer the total due to the executor's account and show it as a liability until it is paid. If it is to be paid in instalments with interest, show it as the executor's loan.
Not showing working notes in written answers.
Fix: Label each working note and refer to it in the account so the examiner can award step marks.

Last-day revision: Death of Partner

On death, the firm settles with the executor or legal representative of the deceased.
The date of death is the cut-off for profit, interest on capital and drawings.
Profit up to death is found in one of two ways, as the question states. Time apportionment takes the previous year's (or current year's) profit pro rata to the period up to death. The sales method applies the ratio of sales up to the date of death to the total sales of the year.
The deceased's share of goodwill is credited to his capital account under either treatment. Goodwill is treated in one of two ways. (a) Goodwill is raised in the books in the old ratio, so the deceased is credited with his share, and it is written off among the surviving partners in their new ratio, since the deceased has no new share. (b) No goodwill is raised. The gaining partners' capital accounts are debited in the gaining ratio and the deceased's capital account is credited with his share. If goodwill already appears in the books, first write it off to all partners' capital accounts in the old ratio, then apply (a) or (b) to the full agreed goodwill. If the question says so, raise only the increase in the old ratio instead. Follow the question's instruction.
Gaining ratio = new share − old share for each surviving partner.
Revaluation profit or loss is shared by all partners in the old ratio, including the deceased.
On death of a partner, the firm receives the sum assured of the joint life policy in full: debit Bank, credit Joint Life Policy account. The policy account is then closed. If a policy reserve exists, it is transferred to all partners' capital accounts, including the deceased, in the old ratio. If no reserve exists, the surplus (sum assured less book value of the policy) is distributed in the old ratio. The deceased is credited only with his share, not the whole amount.
Interest on drawings is charged up to the date of death and debited to the deceased's account.
Interest on capital is credited to the deceased for the period up to the date of death only.
The deceased's capital account closes by transfer of its balance to the executor's account, shown as a liability. If it is paid in instalments with interest, it is shown as the executor's loan.
If paid in instalments, interest to the executor is a finance cost and is not part of the capital balance.
Check the final balance sheet: the total of assets must equal the total of capital and liabilities.

Death of Partner practice questions

Death of Partner in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Death of Partner: frequently asked questions

How is profit up to the date of death calculated?

It is usually based on time apportionment of the previous year's profit, or on a sales ratio if the question gives sales. Apply the deceased's share to that profit. Follow whichever basis the question or the deed gives.

Who is paid when a partner dies?

The firm pays the executor or legal representative of the deceased. The amount due is moved from the deceased's capital account to the executor's account and shown as a liability until it is settled.

How is goodwill treated on the death of a partner?

It depends on the question. Goodwill may be raised in the books in the old ratio and written off among the surviving partners in their new ratio. Or the gaining partners may compensate the deceased's share through their capital accounts in the gaining ratio. If goodwill already appears in the books, write it off to all partners' capital accounts in the old ratio, then treat the full agreed goodwill by the required method. If the question says so, raise only the increase in the old ratio.

Is Death of a Partner easy to score in?

It is a good scoring chapter if you follow a fixed order of entries. Most mistakes come from the date, the ratios and skipped adjustments, not from difficult concepts. Practise full problems to build speed.