Computation of profit will be different in case of death of a partner as compare to the retirement. The reason is that in case of retirement everything is pre-planned but in case of death nothing is planned.
In case of death, the share of profit.can be calculated by one of the two methods.
(i) On the Basis of Time: In this method, profit upto the date of the death of the partner is calculated on the basis of time passed till the death of the partner from the beginning of the year on the bases of the last year’s/years’ profit or average profit of last few years. The assumption in this method is that the profit will be uniform throughout the current year. The share of the deceased partner profit will be calculated as follows
Example A, B, C and D are equal partners. The profit of the firm for the years 2009, 2010 and 2011 are ? 5,00,000, ? 7,00.000 and <9,00,000 respectively. C dies on June 30, 2012. The share of C in the firm’s profit will be calculated on the basis of average profit of last three years. Firm closes its books every year on December 31. In this case, C’s share in the profits will be calculated for four months. i e., from January 1. 2012
(ii) On the Basis of Sale: In this method, profit up to the date of the death of the partner is calculated on the basis of sales affected till the date of the’ death of the partner from the beginning of the year. The assumption in this method is that the net profit margin for current year will be same as the previous year. The share of the deceased partner profit will be calculated as follows
Example A, B and C are equal partners. The last year’s sales and profit were ? 40,00,000 and ? 4,00,000. C died on June, 2012. Sales of the current year till the date of C’s death amounts to ? 15,00,000. Firm closes its books on December 31 every year.
