Discuss the various methods of computing the share is profit in the event of death of a partner.
Discuss the various methods of computing the share is profit in the event of death of a partner.
In the unlikely event of the death of a partner during the year, the executor is entitled for a profit sharing up to the date of death of the partner. Profit sharing can be calculated by two methods:
1. On Time Basis: In this method, profit earned till the date of partners death is considered for calculation on the basis of last year/year’s profit or average profit earned in last few years. It is assumed that profit will remain constant throughout the year and the deceased partner will be eligible for profit share which is proportionate till the date of partner’s death.
Share of Deceased Partner in Profit =
Time period from date of balance sheet till death12 months/52 weeks/ 365 days×Profit of share of deceased partner
2) On the sale basis: Calculation of profit is based on last year’s sale as per this method and also it is assumed that net profit of current year is similar to last year’s profits.
Share of Deceased Partner’s Profit == Previous Year's ProfitPreviousYear′s Sales× Sales from the beginning of the current year up to the date of death ×Share of decreased partner
In the unlikely event of the death of a partner during the year, the executor is entitled for a profit sharing up to the date of death of the partner. Profit sharing can be calculated by two methods:
1. On Time Basis: In this method, profit earned till the date of partners death is considered for calculation on the basis of last year/year’s profit or average profit earned in last few years. It is assumed that profit will remain constant throughout the year and the deceased partner will be eligible for profit share which is proportionate till the date of partner’s death.
Share of Deceased Partner in Profit =
Time period from date of balance sheet till death12 months/52 weeks/ 365 days×Profit of share of deceased partner
2) On the sale basis: Calculation of profit is based on last year’s sale as per this method and also it is assumed that net profit of current year is similar to last year’s profits.
Share of Deceased Partner’s Profit == Previous Year's ProfitPreviousYear′s Sales× Sales from the beginning of the current year up to the date of death ×Share of decreased partner
