Why is the time ratio useful for estimating a deceased partner’s share of profit up to the date of death?

Correct answer: Profit is earned over a period of time

Profit is earned throughout the accounting year. Therefore, when profit is assumed to accrue evenly, the profit up to the date of death is estimated by applying the relevant time ratio to the annual profit. Changes in capital, stock or debt are not the basis of the time ratio. Exam tip: Use the period before death in proportion to the total accounting period when allocating annual profit.