Death of a partner Notes2

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

  1. Time Basis 
  2. 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      

DEATH OF A PARTNER 2C-a

b) Through Capital Transfer – When New Profit-Sharing Ratio of the continuing partners differs from Old Profit-Sharing Ratio