Identify the basis on which share of Profit or Loss of deceased partner is calculated from the date of last balance sheet to the date of death of that partner.
Answer & explanation
Correct answer: option 3
The correct answer is Option is (3) → Either Time Basis or Sales Basis
Profit can be calculated on any of the above basis. The base can be mentioned in the partnership deed or it will be mutually decided by the partners. Closing the books and preparing the final accounts for the period following the death of a partner can be a complex and time-consuming process. To simplify this procedure, the deceased partner's share of the profit can be determined using alternative methods.
One approach is to calculate their share based on the previous year's profit.
Alternatively, an average of profits from the past few years can be used.
Another option is to base the calculation on the sales generated during the period. These alternative methods help streamline the process and provide a reasonable estimation of the deceased partner's share of the profit.