Partnership Accounts

Joint Life Policy (JLP)

CPT Section A Fundamentals of Accountancy Chapter 8 Unit-4&5
Prof. Deepak Jaggi
 Learning Objectives

(1) Understand the meaning of JLP

(2) Understand the Implication of Excess Money

Received on Death of a Partner from JLP

(3) Understand the meaning of Surrender Value

(4) To Lay a foundation of accounting treatment

of various Methods
 Joint Life Policy (JLP)

Joint Life Policy is a policy taken in the joint names of all

the partners

The premium of this policy is paid by the firm

Contd….
 Joint Life Policy (JLP)

Whenever any of the partner dies, the policy comes to an

end and amount is received by the firm

Policy amount including the bonus, if any belongs to the

entire firm and not only to the deceased partner
 Methods of Accounting

Method 1 :- When Premium paid is treated as an expenses

Method 2: When premium paid is treated as an asset

Method 3: When premium paid is treated as an asset and

JLP reserve created
 Method

Method – I:
Full Premium paid = Expense = Debited to P&L A/c

1) For Payment of Premium

JLP Premium A/c …….. Dr.
To Cash / Bank A/c
2) For Transfer
Profit and Loss A/c …………….. Dr.
To JLP Premium A/c

Contd…..
 Method – 1 Conti..

3) On Maturity of policy / Death of Partner

Cash / Bank A/c …………… Dr.
To Joint Life Policy A/c

4) For transfer of Balance in Joint Life Policy A/c

Joint Life Policy A/c …………………….. Dr.
To All partners Capital A/c
(Old Profit Sharing Ratio)
 Method - II

Premium Paid = Expense but after considering the

Surrender Value

1) For the payment of Premium

Joint Life Policy A/c …………. Dr.
To Cash / Bank A/c
2) For Transfer
Profit and Loss A/c …………. Dr.
To JLP A/c
(Diff. between Premium and Surrender Value)
Contd…
 Method II Conti..

3). At time of Maturity:

Bank A/c ………………… Dr.
To Joint Life Policy A/c

4. For Transfer of Balance in Joint Life Policy A/c.

Joint Life Policy A/c ……………………. Dr.
To All partner’s Capital A/c
( Old Profit Sharing Ratio)

Contd…
 Method III

Surrender Value Considered and Premium Paid = JLP Reserve

Created

At the end of every year , an amount equal to the premium paid is

transferred from the Profit and Loss appropriation A/c to JLP
Reserve A/c.
JLP is brought down every year to its surrender value by transferring
the difference to JLP Reserve A/c

This ensure that at the end of every year, the surrender value of
policy appears on the asset side and the same amount appeas on the
liability side in JLP Reserve A/c

Contd…
 Method III Conti..
1) On Payment of Premium
Joint Life Policy A/c …………………… Dr.
To Cash /Bank A/c

2) For Creation of reserve

Profit and Loss Appropriation A/c…………. Dr.
To Joint Life Policy Reserve A/c

3) For amount in excess of surrender value

Joint Life Policy Reserve A/c ……………….. Dr.
To Joint Life Policy A/c
Note: In the balance sheet JLP will appear on the Asset and JLP Reserve will
appear on the liability side at surrender value.

Contd…
 Method III Conti..
4) At the time of maurity
Bank A/c …………………… Dr.
To Joint Life Policy A/c

5) For transfer of balance in reserve A/c to Policy A/c

Joint Life Policy Reserve A/c…………. Dr.
To Joint Life Policy A/c
Note: Alternatively JLP Reserve can be directly transferred to
Partner’s Capital A/c and JLP policy also.

6) For transfer of Balance of Joint Life Policy

Joint Life Policy A/c …………………… Dr.
To Partner’s Capital A/c

Contd…
 Multi Choice Questions (M.C.Q)
Q.1. Joint Life Policy is taken by the firm on the life(s)
of ______

a) All the partners jointly

(b) All the partners severely

c) On the life of all the partners and employees of the firm.

d) (a) and (b)

Ans. d) (a) and (b)

MCQ’s
MCQ.1
Q.1. X, Y and Z takes a Joint Life Policy after five years Y retires from the firm. Old
profit sharing ratio is 2:2:1. After retirement X and Z decides to share profits equally.
They had taken a JLP of ₹2,50,000 with the surrender value ₹50,000 , what will be
the treatment in the partner’s capital account on receiving the JLP amount if joint
life premium is fully charged to revenue as & when paid?

a) ₹50,000 credited to all the partners in old ratio

(b) ₹2,50,000 credited to all the partners in old ratio

c) ₹2,00,000 credited to all the partners in old ratio

d) No treatment is required

Ans. a) ₹50,000 credited to all the partners in old ratio

MCQ.2
Q.2. X, Y and z takes a Joint Life Policy , after 5 years Y retires from the firm. Old profit
sharing ratio is 2:2:1. After retirement X and Z decides to share profits equally. They
had taken a JLP of ₹2,50,000 with the surrender value ₹50,000 . What will be the
treatment in the partner’s capital account on receiving the JLP amount, if the JLP is
maintained at the surrender alongwith the reserve?

a) ₹50,000 credited to all the partners in old ratio

(b) ₹2,50,000 credited to all the partners in old ratio

c) ₹2,00,000 credited to all the partners in old ratio

d) Distributed JLP Reserve Account in old profit sharing ratio.

Ans. d) Distributed JLP Reserve Account in old profit sharing

ratio.
MCQ.3
Q.3. X, Y and Z were partners sharing profits and losses in the ratio of 3:2:1. X
retired and firm received the joint life policy as ₹7,500 appearing in the balance sheet
at ₹10,000 . Joint Life Policy is credited and cash debited with ₹7,500 , what will be
the treatment for the balance in Joint Life Policy ?

a) Credited to partner’s current account in profit sharing ratio.

(b) Debited to revaluation account.

c) Debited to partner’s capital account in profit sharing ratio.

d) Either (b) or (c).

Ans. d) Either (b) or (c)

MCQ.4
Q.4 X, Y and Z are partners sharing profits and losses in the ratio 9:4:3 . They took joint
life policy of ₹25,000 for X, ₹20,000 for Y and ₹51,000 for Z. What is the share of Z in
the Joint Life Policy amount?

a) ₹18,000

(b) ₹25,000

c) ₹51,000

d) ₹20,000

Ans. a) ₹18,000
MCQ.5

Q.5. X, Y and Z are the partners sharing profits and losses in the ratio 2:1:1 . Firm has a
joint life policy of ₹1,20,000 and in the balance sheet it is appearing at the surrender
value i.e. ₹20,000. On the death of X, how this Joint Life Policy will be shared among
the partners.

a) 50,000 : 25,000 : 25,000

(b) 60,000 : 30,000 : 30,000

c) 40,000 : 35,000 : 25,000

d) Whole of ₹1,20,000 will be paid to X.

Ans. a) 50,000 : 25,000 : 25,000

MCQ.6

Q.6. To provide funds to pay to the retiring partner or to

the representatives of a deceased partner, generally
partners :

a) Created a Sinking Fund

(b) Create Joint Life Policy

c) Create Reserve Fund

d) Create a separate Bank Account

Ans. b) Create Joint Life Policy

MCQ.7

Q.7. All the following except one is the method of

recording join life policy.

a) Premium paid charged to revenue

(b) Joint Life Policy Account maintained at the surrender value.

c) Joint Life Policy Account maintained at the surrender value along with the
Reserve.

d) Surrender value distributed among the partners in the profit sharing ratio.

Ans. d) Surrender value distributed among the partners in the profit sharing
ratio.
MCQ.8
Q.8. X, Y and Z takes a Joint Life Policy, their profit sharing ratio 2:2:1. On death of Y, X
and Z decides to share profits equally. They had taken a Joint Life Policy of ₹2,50,000
with the surrender value ₹50,000 . What will be the treatment in the partner’s capital
account on receiving the JLP amount if joint life policy is maintained at the surrender
value?

a) ₹50,000 credited to all the partners in old ratio

(b) ₹2,50,000 credited to all the partners in old ratio

c) ₹2,00,000 credited to all the partners in old ratio

d) No treatment is required.
Ans. c) ₹2,00,000 credited to all the partners in old ratio
MCQ.9
Q.9. Balances of M/s. Rahul, Ankit and Ankur sharing profits and losses in
proportionate to their capitals, stood as follows : Capital Accounts : Rahul ₹3,00,000 ,
Ankit ₹2,00,000 and Ankur ₹1,00,000 . Rahul desired to retire from the firm and the
remaining partners decided to carry on, Joint Life Policy f the partners surrendered and
cash obtained ₹60,000. What will be the treatment for JLP ?

a) ₹60,000 credited to Revaluation Account

(b) ₹60,000 credited to Joint Life Policy Account.

c) ₹30,000 debited to Rahul’s Capital Account

d) Either (a) or (b)

Ans. b) ₹60,000 credited to Joint Life Policy Account
 Lesson Summary

Insurance Policy Taken Out Jointly and Severely

Method I – Full Premium Paid = Expense

Method II – Premium Paid = Expense, but after

considering the Surrender Value

Method III – Along with Surrender Value also a JLP

Reserve is Created for the Premium Amount Paid.

JLP can Save Dissolution of Partnership Firm

Thank You