Question

Ramesh, Suresh and Dinesh were partners sharing profits and losses in the ratio of 3 : 2 : 1. Dinesh died on 1st May, 2025 on which date the capitals of Ramesh, Suresh and Dinesh after all necessary adjustments stood at ₹ 1,20,000 ₹ 80,000 and ₹ 50,000 respectively. Ramesh and Suresh decide to carry on the business for 8 months without settling the account of Dinesh. During the period of 8 months ended 31st December, 2025, a profit of ₹ 40,000 is earned by the firm.

State which of the two options available with Dinesh’s Executor under Section 37 of the Indian Partnership Act, 1932, should be exercised.

Also calculate the total amount payable to Dinesh’s Executor if Ramesh and Suresh clear the dues of Dinesh on 31st December, 2025.

Answer 1

Under Section 37 of the Indian Partnership Act, 1932, Dinesh’s Executor has two options:

1. Interest @ 6% p.a. on the amount due, or
2. A share in the profit earned after Dinesh’s death, proportionate to the amount of Dinesh’s capital outstanding.

1. Interest option:

Dinesh’s capital = ₹ 50,000

Interest for 8 months = `50,000 xx 6/100 xx 8/12`

= ₹ 2,000

2. Share of profit option:

Total capital of the firm on 1 May 2025 = 1,20,000 + 80,000 + 50,000

= ₹ 2,50,000

Dinesh’s proportion = `(50,000)/(2,50,000)`

= `1/5`

Profit for the 8 months = ₹ 40,000.

Therefore,

Dinesh’s Executor’s share = `40,000 xx 1/5`

= ₹ 8,000

Since ₹ 8,000 > ₹ 2,000, Dinesh’s Executor should exercise Option (ii).

Total amount payable = Dinesh’s capital + share of profit

= ₹ 50,000 + ₹ 8,000

= ₹ 58,000