T.S. Grewal Class 12 Chapter 6 Q.35 - Death of a Partner

Question 35

Ramesh, Suresh and Dinesh were partners sharing profits and losses in the ratio of 3 : 2 : 1. Dinesh died on 1st May, 2024, 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 decided to carry on the business for 8 months without settling Dinesh’s account. During this period ended 31st December, 2024, the firm earned a profit of ₹40,000. State which of the two options available to Dinesh’s Executor under Section 37 of the Indian Partnership Act, 1932 should be exercised, and calculate the total amount payable to Dinesh’s Executor if Ramesh and Suresh clear the dues on 31st December, 2024.

Solution

Since the remaining partners continued the business without any agreement with the deceased partner’s executor, Section 37 of the Indian Partnership Act, 1932 entitles the executor to choose whichever of the following is higher:

(i) Interest @ 6% p.a. on the amount due (₹50,000) for 8 months = 50,000 × 6/100 × 8/12 = ₹2,000.

(ii) Share of profit proportionate to Dinesh’s capital in the total capital employed = 40,000 × 50,000 / (1,20,000 + 80,000 + 50,000) = 40,000 × 50,000/2,50,000 = ₹8,000.

Since ₹8,000 (profit share) is higher than ₹2,000 (interest), Dinesh’s Executor should exercise option (ii).

Total amount payable to Dinesh’s Executor = Capital ₹50,000 + Share of profit ₹8,000 = ₹58,000.