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Joint life policy

Tejaswi Kasturi (student-cpt) (427 Points)

25 May 2012

In partnership accounts if joint life policy is maintained at surrender value as an asset in the balance sheet then at the retirement of a partner, can we credit the value to joint life policy account and debit to bank account( It is said in the book that at retirement the policy is surrendered and surrender value is received from the insurance company)?

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12 Replies

JOHAN (CA-FINAL) (277 Points)
Replied 25 May 2012

IF it is not stated ,dont debit bank a/c..........

JOHAN (CA-FINAL) (277 Points)
Replied 25 May 2012

IF it is not stated ,dont debit bank a/c..........

Tejaswi Kasturi (student-cpt) (427 Points)
Replied 25 May 2012

what would be the treatment if we don't debit it to bank A/c. we can't carry it as we surrender the policy due to retirement of partner

Tejaswi Kasturi (student-cpt) (427 Points)
Replied 25 May 2012

what would be the treatment if we don't debit it to bank A/c. we can't carry it as we surrender the policy due to retirement of partner

JOHAN (CA-FINAL) (277 Points)
Replied 25 May 2012

Debit the remaining partners' capital account if the policy is not surrendered.

Tejaswi Kasturi (student-cpt) (427 Points)
Replied 25 May 2012

if it is treated as asset then the above treatment would be wrong as the expense which we don't debit to profit & loss would be what we should have debited to the capital accounts of partner and there is no case of if we have to surrender the policy on the retirement of a partner

shakuntala chhangani (FCA Course co-ordinator WIRC coaching centre) (2525 Points)
Replied 01 June 2012

Hi tejaswi, the answer to your question is :

"If the question says what would be the treatment on receiving policy amount?", it means that the policy is surrendered and the firm will receive money for which it will pass the entry :

Bank A/c Dr. xx

To JLP A/c xx

If the policy is not surrendered upon retirement of partner, then whatever is the surrender value of the policy, the retiring partner will get a share in it which will be compensated by the continuing partners in sacrifice ratio (just like goodwill) by passing the entry :

Continuing partners capital A/c Dr. xx

To retiring partner's capital A/c xx

If u have any further doubt, revert back to me.

Regards,

CA Shakuntala Chhangani

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Tejaswi Kasturi (student-cpt) (427 Points)
Replied 01 June 2012

I also have a further doubt? will the policy continue to exist after a person who would benefit from the policy is removed from the firm as such from the benefits of the policy?. Would the policy be taken only in the name of firm and indipendent of the constitution of the firm after the initiation of the policy or would it be taken on the names of partners jointly and should be surrendered to the insurance company at the time of retirement

Tejaswi Kasturi (student-cpt) (427 Points)
Replied 03 June 2012

CA. Nitin Gupta (CA) (347 Points)
Replied 03 June 2012

As JLP is appearing in Balance Sheet, and on retirement firm will get the SV of Policy.

At the time of retirement Policy will be surrendered and now this SV is receivable from Insurance Co. So J/E will be

(i) Insurance Co. Dr

To JLP

(ii) On receiving of SV Amount

Bank A/c Dr

To Insurance Co.

1 Like

shakuntala chhangani (FCA Course co-ordinator WIRC coaching centre) (2525 Points)
Replied 04 June 2012

Hi again tejaswi, In case of partnership there may be change in the constitution of he firm i.e. the new partner may be added or old partner may retire. JLP is taken by the firm and not by the partners. By making special agreement with the insurance co., these matters may be given effect to by making changes in the terms of the policy in which case policy will continue as it was with changes in premium amount. However, the retiring partner will ask for his share in the policy which is the asset of the firm and being the partner he has a right of share in assets of the firm. In this case, the firm will not surrender the policy but give the retiring partner his share in the surrender value of the policy by passing the entry :

Continuing partners capital A/c Dr. XX (sacrifice ratio)

To Retiring partner's capital A/c XX

This is similar to share of the retiring partner in goodwill. In IPCC u will find many sums based on the above funda. In case you still have any doubt, revert back to me.

Regards,

CA Shakuntala Chhanagni

1 Like