Why are the average profits of previous years used to estimate the current year’s profit while determining a deceased partner’s share of profit?

Correct answer: To make a fair estimate of the business’s normal profit

A deceased partner’s share is generally calculated on the basis of the estimated profit from the beginning of the accounting year up to the date of death. The average profit of previous years reduces the effect of unusually high or low profits and gives a fairer estimate of normal profit. Stock valuation is a separate accounting procedure, so option B is not correct. Exam tip: associate average profit with estimating normal profit, not with cash or liabilities.