Calculation of share of profits from the date of last Balance Sheet up to the date of death.
Methods of calculation of estimated profit:
(a) Time basis:
Estimated profit=Profits of the last year (Average profits) x [No. of months up to the date of death/12]
The deceased partner’s share is to be calculated by multiplying the above estimated profit with his profit sharing ratio.
In this the previous year profits are taken as the base and the following formula is used:
(b) Turnover (sales) basis:
Estimated profit= [Last year's Profit/Last year's sales] x Current year's sales up to date of death
The deceased partner’s share is to be calculated by multiplying the above estimated profit with his profit sharing ratio.
Following journal entry is passed for recording deceased partner’s share of estimated profit.
Profit and loss suspense A/c DR.
To Deceased Partner’s Capital A/c
The balance in Profit and loss suspense A/c is shown on the asset side of the Balance Sheet of the new firm.