Study Material & Notes for the Chapter 7
Partnership - Death of a partner
II. CALCULATION OF PROFIT UP TO THE DATE OF DEATH OF A PARTNER
If the death of a partner occurs during the year, the representatives of the deceased partner are entitled to his/her share of profits earned till the date of his/her death. Such profit is ascertained by any of the following methods
- Time Basis
- Turnover or Sales basis
A. Calculation of Profit up to the Date of Death of a Partner – Time Basis
It is computed either on Previous Year Profit or Average Profit
Deceased Partner’s Share of Profits = Previous Year Profit X Time Till Death X Deceased Partner’s Share
12 or 365
Or
Deceased Partner’s Share of Profits = Average Profit X Time Till Death X Deceased Partner’s Share
Where, Average Profit = Total Profit
12 or 365
No. of Years
B. Calculation of Profit up to the Date of Death of a Partner – Sales or Turnover Basis
Deceased Partner’s Share of Profits = Last Year Profit X Sales Till Death X Deceased Partner’s Share
C. Accounting Treatment of Deceased Partner’s share in Profits
a) Through Profit & Loss Suspense Account – When New Profit-Sharing Ratio of the continuing partners does not differ from Old Profit-Sharing Ratio
b) Through Capital Transfer – When New Profit-Sharing Ratio of the continuing partners differs from Old Profit-Sharing Ratio
