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Financial Accounting · Death of Partner

Balance Sheet and New Profit Sharing Ratio After Death of a Partner

Updated 10 October 2026 · Fact-checked

After a partner dies, you settle the deceased's share through goodwill, revaluation, reserves and profit adjustments, move the final amount due to the executor's account, and then redraw the balance sheet. Continuing partners get a new profit sharing ratio; each gainer's gain is new share minus old share, and the gaining ratio drives the goodwill adjustment.

Understand Final Accounts and Balance Sheet after Death

When a partner dies, the old firm ends for that partner, but the business usually carries on with the surviving partners. The deceased partner's estate (the legal heirs, acting through the executor) is entitled to everything the partner would have received on that date: capital, share of reserves, share of goodwill, share of revaluation profit and share of profit up to the date of death, less drawings and any loss.

The balance sheet after death is simply the balance sheet before death, changed by these adjustments. Goodwill, reserves and revaluation are shared by the old ratio, because they were built up when the old ratio applied. After that, the deceased's account is closed and the amount is moved to the executor's account. If it is not paid in full at once, the unpaid balance stays in the balance sheet as a liability (often called Executor's Loan or Executor's A/c).

The surviving partners now share profits in a new profit sharing ratio. The question may tell you the ratio directly, may say the deceased's share is taken in a given ratio, or may say the survivors continue in their old ratio to each other. In the last case, the new ratio is their old ratio ignoring the deceased.

The gaining ratio is the ratio of what each survivor gains: new share minus old share. It is used to charge the deceased's goodwill to the survivors. Goodwill is usually not shown in the new balance sheet unless the question says so. It is adjusted through the partners' capital accounts, so it should not appear as an asset.

Sometimes the survivors also want their capitals in the new profit sharing ratio. Then you work out the new capitals and show the cash brought in or withdrawn. This is a separate step after settling the deceased.

Key rules to remember

Gaining ratio
Gain = New share − Old share (for each continuing partner)
The gaining ratio is the ratio of these gains. If all survivors gain, every gain is positive.
New ratio when survivors continue in their old ratio
New ratio = Old ratio of survivors only
For example, if A, B and C share 5:3:2 and C dies, A and B continue 5:3. In this case the gaining ratio equals the new ratio.
Goodwill share of deceased
Deceased's goodwill = Total goodwill × Deceased's old share
Credit the deceased's capital account. Debit the gaining partners' capital accounts in the gaining ratio.
Reserves and revaluation
Share of reserve / revaluation profit (loss) = Amount × Old ratio share
Reserves and accumulated profits are credited to all partners in the old ratio. A revaluation profit is credited and a loss debited in the old ratio.
Amount due to executor
Capital + Share of reserves + Share of goodwill + Share of revaluation profit + Profit up to date of death (+ interest on capital, salary, JLP share if given) − Drawings − Interest on drawings − Share of revaluation loss or loss up to death
Include only the items given. Closing balance of the deceased's account is transferred to Executor's A/c.
New capitals in new ratio
New capital of each survivor = Agreed total capital × New share
The difference from the adjusted capital is cash brought in (if short) or withdrawn (if excess).

How to solve Final Accounts and Balance Sheet after Death questions

Follow this order and you can solve any balance sheet after death question, whatever the extras.

  1. 1Write down the old ratio, the date of death, and the new ratio given. If it is not given, work it out from the question's wording. Compute the gaining ratio as new share minus old share.
  2. 2Open a Revaluation Account if asset or liability values change. Post the profit or loss to all partners in the old ratio.
  3. 3Distribute reserves and accumulated profits (or losses) to all partners in the old ratio.
  4. 4Adjust goodwill. Credit the deceased with his share, debit the gainers in the gaining ratio. If goodwill is already in the books, write it off first in the old ratio and then raise it again as the question requires.
  5. 5Add the other items for the deceased: profit up to date of death, interest on capital, salary, JLP share, less drawings and interest on drawings. Prepare his capital account and find the balance due.
  6. 6Transfer the deceased's balance to the Executor's A/c. Record any payment made (reduce cash or bank). Carry the unpaid balance to the balance sheet as a liability.
  7. 7If the question asks for capitals in the new ratio, compute the new capitals, find the cash brought in or taken out, and update cash.
  8. 8Draw the revised balance sheet. Show the survivors' adjusted capitals and the executor's balance, and check that both sides total the same.

Quickest way: Capital account columns method

When to use it: Use it when there are many adjustments and little time. It replaces separate ledger accounts for reserves and goodwill.

  1. Draw one table with a column for each partner, deceased included. Put the opening capital first.
  2. Add one row each for reserve, revaluation profit or loss, and goodwill, posting each partner's amount straight across.
  3. Add the deceased's other items, then total each column. This gives the closing capitals and the amount due to the executor.
  4. Move the executor's amount to the liability side, adjust cash for any payment, and update asset values for revaluation. The balance sheet should total the same on both sides, which proves the working.

Common mistakes in Final Accounts and Balance Sheet after Death

  • Charging goodwill to the survivors in the old ratio.

    Students remember that goodwill is shared in the old ratio when it is created, and apply this to the adjustment.

    Fix: The deceased's goodwill is borne by the gainers, in the gaining ratio. Only the credit to the deceased uses his old share.

  • Dividing the reserve among the survivors only.

    The deceased partner feels 'gone', so students leave him out.

    Fix: Reserves, accumulated profits and revaluation results belong to all partners at the date of death. Share them in the old ratio including the deceased.

  • Showing goodwill as an asset in the new balance sheet.

    The goodwill value is given in the question, so students feel it must appear.

    Fix: Unless the question says to retain it, adjust goodwill only through capital accounts. The balance sheet does not show it.

  • Computing the gaining ratio by subtracting the wrong way, or including the deceased.

    Students mix up the sacrificing ratio method used for admission.

    Fix: For each survivor, take new share minus old share. The deceased has no new share and is not part of the gaining ratio.

  • Leaving the executor's balance out of the liabilities, or forgetting to reduce cash for a part payment.

    Students close the deceased's account and stop there.

    Fix: Transfer the balance to Executor's A/c. Deduct any amount paid from cash or bank, and show the rest as a liability.

  • Balance sheet totals do not agree and the student guesses a figure.

    Revaluation changes to assets or liabilities were posted in capital accounts but not in the balance sheet.

    Fix: Update every asset and liability named in the revaluation. Then recheck both totals before writing the final answer.

Worked examples

Example 1

A, B and C share profits 5:3:2. C dies on 31 March 2027. Balance sheet on that date: Capitals: A ₹3,00,000; B ₹2,00,000; C ₹1,50,000; General Reserve ₹1,00,000; Creditors ₹50,000. Assets: Fixed Assets ₹4,00,000; Stock ₹1,50,000; Debtors ₹1,00,000; Cash ₹1,50,000. Goodwill is valued at ₹1,00,000. Fixed assets are revalued upward by ₹20,000. A and B continue and share future profits in their old ratio to each other. C's executor is paid ₹50,000 in cash at once and the balance is kept as a loan. Prepare the revised balance sheet.

Show the solution
  1. New ratio of A and B = 5:3. Old shares: A 5/10, B 3/10. New shares: A 5/8, B 3/8. Gains: A = 5/8 − 5/10 = 1/8, B = 3/8 − 3/10 = 3/40. In common terms, the gaining ratio = 5:3.
  2. Revaluation profit ₹20,000 in old ratio: A ₹10,000, B ₹6,000, C ₹4,000.
  3. General reserve ₹1,00,000 in old ratio: A ₹50,000, B ₹30,000, C ₹20,000.
  4. Goodwill of C = ₹1,00,000 × 2/10 = ₹20,000. Debit A ₹12,500 and B ₹7,500 (5:3). Credit C ₹20,000.
  5. C's capital: ₹1,50,000 + ₹20,000 (reserve) + ₹20,000 (goodwill) + ₹4,000 (revaluation) = ₹1,94,000.
  6. A's capital: ₹3,00,000 + ₹50,000 + ₹10,000 − ₹12,500 = ₹3,47,500. B's capital: ₹2,00,000 + ₹30,000 + ₹6,000 − ₹7,500 = ₹2,28,500.
  7. Cash paid to executor ₹50,000. Executor's loan = ₹1,94,000 − ₹50,000 = ₹1,44,000. Cash = ₹1,50,000 − ₹50,000 = ₹1,00,000. Fixed assets = ₹4,20,000.
  8. Liabilities: A ₹3,47,500 + B ₹2,28,500 + Executor's Loan ₹1,44,000 + Creditors ₹50,000 = ₹7,70,000. Assets: Fixed Assets ₹4,20,000 + Stock ₹1,50,000 + Debtors ₹1,00,000 + Cash ₹1,00,000 = ₹7,70,000. The totals agree.

Answer: Revised balance sheet total ₹7,70,000. Capitals: A ₹3,47,500, B ₹2,28,500. Executor's loan ₹1,44,000. Creditors ₹50,000. Assets: Fixed Assets ₹4,20,000, Stock ₹1,50,000, Debtors ₹1,00,000, Cash ₹1,00,000.

Example 2

A, B and C share profits 5:3:2. B dies on 31 March 2027. Balance sheet: Capitals: A ₹4,00,000; B ₹3,00,000; C ₹2,00,000; General Reserve ₹60,000; Creditors ₹40,000. Assets: Land and Building ₹5,00,000; Stock ₹2,00,000; Debtors ₹1,50,000; Cash ₹1,50,000. Goodwill is valued at ₹90,000. Stock is to be reduced by ₹20,000. A and C will share future profits 2:1. Their capitals are to be fixed at a total of ₹6,00,000 in the new ratio, with the adjustment made in cash. ₹1,00,000 is paid to B's executor at once and the balance is kept as a loan. Prepare the revised balance sheet and show the working.

Show the solution
  1. Old shares: A 15/30, B 9/30, C 6/30. New shares: A 2/3 = 20/30, C 1/3 = 10/30. Gains: A = 20/30 − 15/30 = 5/30, C = 10/30 − 6/30 = 4/30. Gaining ratio = 5:4.
  2. Stock reduction ₹20,000 in old ratio: A ₹10,000, B ₹6,000, C ₹4,000 (all debited).
  3. General reserve ₹60,000 in old ratio: A ₹30,000, B ₹18,000, C ₹12,000 (all credited).
  4. Goodwill of B = ₹90,000 × 3/10 = ₹27,000. A bears ₹27,000 × 5/9 = ₹15,000 and C bears ₹27,000 × 4/9 = ₹12,000.
  5. B's capital: ₹3,00,000 + ₹18,000 + ₹27,000 − ₹6,000 = ₹3,39,000.
  6. A's capital: ₹4,00,000 + ₹30,000 − ₹10,000 − ₹15,000 = ₹4,05,000. C's capital: ₹2,00,000 + ₹12,000 − ₹4,000 − ₹12,000 = ₹1,96,000.
  7. New capitals: total ₹6,00,000. A = ₹4,00,000 and C = ₹2,00,000. A withdraws ₹5,000 (₹4,05,000 − ₹4,00,000). C brings in ₹4,000 (₹2,00,000 − ₹1,96,000).
  8. Cash = ₹1,50,000 − ₹1,00,000 (paid to executor) − ₹5,000 + ₹4,000 = ₹49,000. Executor's loan = ₹3,39,000 − ₹1,00,000 = ₹2,39,000. Stock = ₹1,80,000.
  9. Liabilities: A ₹4,00,000 + C ₹2,00,000 + Executor's Loan ₹2,39,000 + Creditors ₹40,000 = ₹8,79,000. Assets: Land and Building ₹5,00,000 + Stock ₹1,80,000 + Debtors ₹1,50,000 + Cash ₹49,000 = ₹8,79,000. The totals agree.

Answer: Gaining ratio 5:4. Revised balance sheet total ₹8,79,000: Capitals A ₹4,00,000 and C ₹2,00,000; Executor's Loan ₹2,39,000; Creditors ₹40,000. Assets: Land and Building ₹5,00,000; Stock ₹1,80,000; Debtors ₹1,50,000; Cash ₹49,000.

Exam tips

  • Write the old ratio, new ratio and gaining ratio at the top of your answer. Examiners award marks for this working even if a later figure goes wrong.
  • Show each adjustment as a separate line in the partners' capital account, with a clear heading. This earns step marks and makes errors easy to trace.
  • Read whether goodwill is to be shown in the balance sheet. If the question is silent, adjust it only through capital accounts.
  • Check the balance sheet totals before finalising. A mismatch usually means a revaluation change was missed in an asset or liability.
  • For MCQs on the gaining ratio, subtract old share from new share for each survivor first. Then compare the gains, not the new shares.

Practice questions from Death of Partner

Final Accounts and Balance Sheet after Death in other exams

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

Final Accounts and Balance Sheet after Death: frequently asked questions

How do you find the new profit sharing ratio after the death of a partner?

Read the question. If the survivors continue in their old ratio, the new ratio is their old ratio ignoring the deceased. If the deceased's share is given to one partner or to the survivors in a stated ratio, add that share to the existing shares.

What is the gaining ratio after death of a partner?

It is the ratio of each survivor's gain in profit share. For every survivor, calculate new share minus old share. If the survivors continue in their old ratio, the gaining ratio equals that old ratio.

Where does the deceased partner's balance go in the balance sheet?

The balance of the deceased's capital account moves to the Executor's account. Any part paid in cash reduces cash or bank. The unpaid balance appears as a liability (often called Executor's Loan) until it is settled.

Is goodwill shown in the balance sheet after death?

Usually no. It is adjusted through the partners' capital accounts. Show it as an asset only when the question clearly asks you to raise and retain it.