Question

Select the most appropriate answer from the alternatives given below :

An amount received from the Insurance Company against the joint life policy is __________.

Options

• debited to deceased partner

• credited to deceased partner

• credited to continuing partners capital A/c

• credited to all partners capital A/c in their profit sharing ratio.

Answer 1

An amount received from the Insurance Company against the joint life policy is credited to all partners’ capital A/c in their profit sharing ratio.

Explanation: Joint life policy is an insurance policy purchased by a firm on the joint lives of all the partners. In this manner, it is an asset of the firm. So, every partner, including the deceased partner, has as much right on it as the other (continuing) partners. Therefore, on the death of any one partner, the amount received from the insurance company against the joint life policy is credited to All Partners’ Capital Accounts in their old profit sharing ratio.