When the deceased partner's share in the estimated loss is calculated for a period from the date of the latest Balance Sheet to the date of death of the partner, then :
When the deceased partner's share in the estimated loss is calculated for a period from the date of the latest Balance Sheet to the date of death of the partner, then :
Solution
When a partner dies between two Balance Sheet dates, profits or losses for the intervening period need to be estimated and the deceased partner's share must be calculated.
In case of an estimated loss:
The deceased partner's share in this loss must reduce their capital balance (as losses decrease capital). Since the actual loss is not yet determined, a Profit and Loss Suspense Account is used temporarily.
Journal Entry:
Deceased Partner's Capital A/c ... Dr
To Profit and Loss Suspense A/c
Explanation:
- Deceased Partner's Capital Account is debited → This reduces the capital balance by their share of the estimated loss
- Profit and Loss Suspense Account is credited → This account holds the estimated loss temporarily until actual accounts are prepared
This is similar to how any partner's capital is reduced when they bear a loss, except here we use a suspense account because the loss amount is estimated, not final.
Once actual accounts are prepared, the Profit and Loss Suspense Account will be cleared by transferring it to the actual Profit and Loss Account.
Correct Option: 4
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