Death of a Partner: Capital Account & Executor Settlement: quick revision, 15 bites

Death Settlement: The Executor's Claim

Dead partner's dues go to the executor.

On a partner's death, the firm must calculate the **total amount due** to the deceased partner and pay it to their **executor** (legal representative). This includes capital balance, goodwill share, profit share, salary, and interest on capital — minus drawings.

Takeaway. The executor receives a single consolidated amount, not individual components.

Executor: Legal Representative

Who gets the dead partner's money?

Takeaway. The executor steps into the deceased partner's shoes for settlement.

Steps to Prepare Deceased Partner's Capital Account

Follow these steps in order.

Takeaway. The final credit balance is the executor's claim.

Goodwill Valuation: Average Profit Method

Goodwill = average profit × years' purchase.

Deceased partner's share = Firm's goodwill × deceased partner's profit-sharing ratio.

Takeaway. Always use the profit-sharing ratio to find the deceased partner's share of goodwill.

Profit Share Up to Death

Time-proportion the last year's profit.

Takeaway. Use the last year's profit and the exact months from the accounting year start.

Interest on Capital & Salary

Time-factor every entitlement.

Takeaway. Interest and salary are always prorated for the months until death.

Don't Forget to Deduct Drawings

Drawings reduce the executor's claim.

Takeaway. Drawings are a debit; missing them overstates the executor's claim.

Revaluation Profit vs Loss

Revaluation gain goes to all partners.

Takeaway. Revaluation is a firm-level adjustment, not a deceased-partner-only entry.

Goodwill: Average Profit vs Super Profit

Two methods, one choice.

Takeaway. Check the deed to know which goodwill method to apply.

Worked Example: Narendra's Goodwill

Average of 4 years × 3.

Profits: ₹30,000, ₹25,000, ₹25,000, ₹40,000. Years' purchase = 3. Narendra's ratio = 2/10.

Takeaway. Narendra's goodwill share of ₹18,000 is credited to his capital account.

Worked Example: Narendra's Profit Share

3 months at last year's rate.

Last year's profit = ₹40,000; death on 30 June (3 months); ratio = 2/10.

Takeaway. Narendra's profit share of ₹2,000 is credited to his capital account.

Show Working Notes Clearly

Marks live in the working notes.

Takeaway. Working notes carry dedicated marks — never skip them.

Mnemonic: C-G-P-S-I-D

Six credits, one debit.

Remember the deceased partner's capital account credits as **C-G-P-S-I**: **C**apital, **G**oodwill, **P**rofit share, **S**alary, **I**nterest — then **D**educt drawings.

Takeaway. C-G-P-S-I-D keeps all entitlements and the drawings deduction in mind.

Why Firms Need a Deed

No deed, no clarity.

A **partnership deed** pre-defines how goodwill, profit share, salary, and interest are calculated on death. Without it, disputes with the executor can delay settlement for months.

Takeaway. A clear deed protects both the firm and the deceased partner's family.

Don't Use New Ratio for Deceased Partner

Old ratio only for the deceased.

Takeaway. Old ratio applies to all of the deceased partner's entitlements.