Q.Distinguish between the Time Basis and the Turnover (Sales) Basis of ascertaining a deceased partner's share of profit up to the date of death.

Both methods estimate the deceased partner's share of an incomplete year's profit, but they rely on different underlying data and assumptions about how the firm's profit actually arises through the year.

Time Basis. The previous year's profit (or an average of a few past years' profits) is taken as a reasonable stand-in for the current year, and is apportioned simply by the FRACTION OF THE YEAR elapsed up to the date of death, before applying the deceased partner's own profit-sharing ratio. This method implicitly assumes that profit is earned evenly, month by month, through the year — an assumption that may not hold for a seasonal business.

Turnover (Sales) Basis. The previous year's PROFIT-TO-SALES ratio (i.e., what percentage of sales became profit last year) is calculated, and this same percentage is applied to the ACTUAL sales achieved during the part-period up to the date of death, before applying the deceased partner's profit-sharing ratio. This method uses real, observed sales data for the part-period rather than assuming a flat, even spread of profit through the year, and so gives a more reliable estimate whenever the business's sales (and therefore profit) are not spread evenly across the year. …

Students sometimes assume the two bases must always give the same answer — they generally do NOT, unless the firm's sales happen to be perfectly even through the year, since the two methods re …