Deceased Partner's Share of Profit up to the Date of Death

Because death can occur on any date, the firm's actual profit for the full accounting year is not yet known when a partner dies partway through it. The deceased partner's share of profit for the period from the start of the accounting year up to the date of death must therefore be estimated, using one of two commonly followed bases:

1. Time Basis. The previous year's profit (or the average of a few past years' profits, if the firm's policy or the question specifies) is treated as a reasonable estimate for the current year, and is apportioned by the fraction of the year the deceased partner was alive, before applying the partner's own profit-sharing ratio. The order in which the ratio and the time fraction are applied does not matter — both give the same figure, which is a handy way to cross-check the calculation.

2. Turnover (Sales) Basis. Used when sales figures for the part-period are available and give a more reliable estimate than a flat time split (for instance, where the business is not seasonal in a way that would distort a simple time-based apportionment). The profit-to-sales ratio of the previous full year is applied to the actual sales of the part-period up to the date of death, and the deceased partner's share is then applied to this estimated part-period profit.

The estimated amount is recorded through a Profit & Loss Suspense Account: this account is DEBITED, and the deceased partner's Capital Account is CREDITED. The Suspense Account is a temporary, holding account — it is closed off later against the firm's ACTUAL profit for the full year, once that becomes known at the year's close. …