Q/ In case of partership firm dissolution....should the Joint Life Policy Reserve be adjusted for the calculation of capital ratio?? Reasons?
2 Replies
Gopalkrishna B
(Accountant/IPCC Student)
(25 Points)
Replied 27 September 2011
Yes. Capital ratio will be determined after adjusting all the reserves and accumulated profits to the date of dissolution. Further, life policy reserve is in the nature of an accumulated profit and must be transferred to capital account of all partners in the ratio of old profit sharing ratio.
Please refer chapters regarding "Life insurance policy and its assignment" under Retirement and death of partner and "Capital ratio" under Garner vs Murray rule in Dissolution accounting simultaneously to understand the concepts clearly. Ref. RL Gupta & M Radhaswami.
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