Financial Accounting · Death of Partner

Death of a Partner: Effect on Firm and Settlement

Updated 10 October 2026

Under the Indian Partnership Act, 1932, death dissolves the firm unless the contract provides otherwise. Most deeds provide for continuation among survivors, so assume continuation in exams. You find the amount due to the executors by crediting capital, reserves, goodwill, revaluation gain and profit to date of death, and debiting drawings and losses.

Understand Death of a Partner: Introduction and Settlement

A partnership is based on mutual trust between named individuals. Under Section 42(c) of the Indian Partnership Act, 1932, unless the partnership contract provides otherwise, the death of a partner dissolves the firm. Most firms avoid this by including a clause in the partnership deed that the firm continues among the survivors. In exams, assume the firm continues unless the question says it is dissolved.

The deceased partner's estate is represented by the executors (or legal heirs). The estate is entitled to what the partner would have received on retirement at the date of death: the capital balance, the share of accumulated profits and reserves, the share of goodwill, the share of any revaluation profit, and the share of profit up to the date of death. The estate also bears the partner's share of any loss and drawings already taken.

The heirs do not become partners automatically. Where the firm continues under the contract, Section 35 of the Act says the estate of the deceased is not liable for acts of the firm done after his death. Under Section 37, if the surviving partners carry on the business without final settlement of accounts, then, unless there is a contract to the contrary, the executors may choose between two things: the share of profits made since the death that is attributable to the use of the deceased's share of the firm's property, or interest at 6% p.a. on the amount of his share in the firm's property (the amount due to the estate). Check what the question says.

For accounting, the death is handled in five parts: (1) profit or loss from the last balance sheet date to the date of death, (2) goodwill, (3) revaluation of assets and liabilities, (4) adjustment of reserves, joint life policy and drawings/interest, and (5) transfer of the final balance to an Executor's Account. The balance is then paid in cash, in instalments, or left as a loan.

The surviving partners take over the deceased's share in the profit. Their gain is the gaining ratio: new ratio minus old ratio for each survivor. Where the survivors compensate for goodwill, they do so in the gaining ratio, not the old ratio.

Key rules to remember

Amount due to executors: Opening capital + share of reserves and accumulated profits + share of goodwill + share of revaluation profit + share of profit to date of death + interest on capital − drawings − interest on drawings − share of loss (if any) = Amount due; Items on the credit side increase the amount; items on the debit side reduce it. Add or subtract share of joint life policy claim as per the question.
Gaining ratio: Gaining ratio = New ratio − Old ratio (for each continuing partner); Used to charge the survivors for goodwill taken over. If no new ratio is given, the survivors share future profits in their old ratio to each other, so the gaining ratio equals their old ratio (for example, 5:3).
Share of profit to date of death (on time basis): Profit share = Annual profit × (months from last balance sheet to death ÷ 12) × Deceased's share; Use the previous year's profit unless the question gives another basis such as average profit or an estimate.
Share of profit on sales basis: Profit share = Profit of last year × (Sales from last balance sheet to death ÷ Sales of last year) × Deceased's share; Use only when sales figures are given in the question.
Closing entry to executor: Deceased Partner's Capital A/c Dr. To Executor's A/c; Transfers the final amount due. When paid, Executor's A/c Dr. To Bank A/c.

How to solve Death of a Partner: Introduction and Settlement questions

Use this order for any question on death of a partner. It keeps every adjustment in the right account and earns step marks.

1Read the date of death and the last balance sheet date. Find the months or period in between. Note the partnership deed terms about the continuing firm.
2Write the old profit sharing ratio and the new ratio. Calculate the gaining ratio of each survivor.
3Adjust accumulated profits and reserves by crediting the capital accounts of all partners in the old ratio.
4Revalue assets and liabilities through the Revaluation Account and share the profit or loss in the old ratio.
5Record goodwill: credit the deceased's capital account with his share of goodwill and debit the gaining survivors' capital accounts in the gaining ratio. If a goodwill account is raised instead, credit it to all partners' capital accounts in the old ratio and write it off to the continuing partners' capital accounts in their new ratio.
6Calculate the share of profit up to the date of death and credit it to the deceased's capital. Charge drawings, interest on drawings and interest on capital as given.
7Prepare the Deceased Partner's Capital Account. Take the balance to the Executor's Account.
8Show the Executor's Account with payments and any loan with interest, then prepare the new Balance Sheet if asked.

Quickest way: Capital Account Shortcut

When to use it: Use it when the question asks only for the amount payable to the executor or for the deceased's capital account.

Write the deceased's capital account straight away with columns for debit and credit.
Credit the opening capital, the share of reserves, the share of revaluation profit, the share of goodwill and the share of profit to date of death.
Debit the drawings, interest on drawings and any loss or joint life policy share if given.
Balance the account. The balancing figure is the amount due to the executors.
Check the answer: the debit and credit totals of the capital account must agree after the balancing figure is added. If goodwill is adjusted through the survivors' capital accounts without opening a goodwill account, the goodwill credited to the deceased must also equal the total goodwill debited to the survivors in the gaining ratio. This second check does not apply when a goodwill account is raised.

Common mistakes in Death of a Partner: Introduction and Settlement

Assuming the firm is always dissolved on a partner's death.
Students recall the general legal rule and ignore the continuation clause.
Fix: Check whether the deed provides for continuation. Most exam problems assume the firm continues among the survivors.
Sharing the deceased's goodwill among the survivors in the old ratio.
Students copy the method used for admission or retirement without checking who gains.
Fix: Credit the deceased's capital with his share of goodwill and debit the gaining survivors' capital accounts in the gaining ratio. Calculate it as the new ratio minus the old ratio.
Forgetting profit to date of death.
The last balance sheet looks complete, so the period after it is ignored.
Fix: Always count the months from the last balance sheet date to the date of death and credit the deceased with the share of profit.
Adding drawings to the capital of the deceased.
Drawings and capital are both in the capital account and the sides get confused.
Fix: Drawings and interest on drawings are debits. They reduce the amount due to the executors.
Treating the executor's amount as a payable to a partner.
The deceased's capital account is left open after death.
Fix: Transfer the balance to the Executor's Account. After death, the person is no longer a partner.
Charging interest on the executor's loan for the wrong period.
Students ignore the date of death or the rate given.
Fix: Interest runs from the date of death until payment, at the rate stated in the question or the deed.

Worked examples

Example 1

A, B and C share profits in the ratio 5:3:2. C dies on 30 September 2026. The last balance sheet was on 31 March 2026. The capital of C was ₹2,00,000 and his share of reserve was ₹20,000. Profit for the year ended 31 March 2026 was ₹1,20,000. C's drawings up to death were ₹15,000. Calculate the amount due to C's executors. Ignore goodwill and interest.

Show the solution

Period from 1 April 2026 to 30 September 2026 = 6 months.
Share of profit to date of death = ₹1,20,000 × 6/12 × 2/10 = ₹12,000.
C's capital account: credit capital ₹2,00,000, reserve ₹20,000, profit ₹12,000 = ₹2,32,000.
Debit drawings ₹15,000.
Amount due = ₹2,32,000 − ₹15,000 = ₹2,17,000.

Answer: The amount due to C's executors is ₹2,17,000.

Example 2

X, Y and Z share profits in the ratio 3:2:1. Z dies. The surviving partners decide to share future profits equally. Goodwill of the firm is valued at ₹60,000. Show the goodwill adjustment through the survivors' capital accounts, without opening a goodwill account.

Show the solution

Z's share of goodwill = ₹60,000 × 1/6 = ₹10,000.
Old ratio of X and Y = 3/6 and 2/6; new ratio = 1/2 and 1/2.
Gain of X = 1/2 − 3/6 = 0. Gain of Y = 1/2 − 2/6 = 1/6.
Gaining ratio of X:Y = 0 : 1/6 = 0 : 1. Y gains the whole of Z's share, so Y alone compensates.
Journal entry: Y's Capital A/c Dr. ₹10,000; To Z's Capital A/c ₹10,000.

Answer: Y's capital account is debited and Z's capital account is credited with ₹10,000.

Exam tips

Write the date of death and the months from the last balance sheet at the top of your answer. It anchors every calculation.
Show the gaining ratio calculation separately. Step marks are given even if the final figure differs.
In theory questions, state the legal position first, then the accounting position, in two short paragraphs.
Read the question for the settlement mode: lump sum, instalments, or loan. The Executor's Account differs for each.
In MCQs, check whether the question asks for the amount due, the gaining ratio, or the goodwill share. They are often swapped.

Practice questions from Death of Partner

Death of a Partner: Introduction and Settlement: frequently asked questions

Is the firm dissolved when a partner dies?

Under the Indian Partnership Act, 1932, death dissolves the firm unless the partnership contract says otherwise. Most deeds say the firm continues among the survivors. Exam questions usually assume continuation.

Who gets the amount due to a deceased partner?

The amount is due to the executors or legal heirs of the deceased. It is shown in the Executor's Account after the capital account is closed. The heirs do not become partners unless they are admitted by agreement.

How do you calculate profit up to the date of death?

Use the time basis or the sales basis. Time basis uses the number of months from the last balance sheet date. Sales basis uses the ratio of sales to the date of death to the sales of the last year. Follow the method given in the question.

What is the gaining ratio in a death problem?

It is the new profit sharing ratio minus the old ratio for each survivor. Survivors pay the deceased's share of goodwill in this ratio. If no new ratio is given, the survivors share future profits in their old ratio to each other, so the gaining ratio equals their old ratio (for example, 5:3).