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Why is the time ratio necessary when calculating a deceased partner’s share of profit?

Answer and explanation

Correct answer: To determine the period for which profit is to be apportioned

A deceased partner is entitled to the proportionate profit earned up to the date of death. The time ratio helps apportion the annual profit between the period up to death and the remaining period. Therefore, option A is correct; increasing capital or reducing liabilities is not the purpose of the time ratio. Exam tip: convert the relevant period into months or days before calculating the ratio.

Related tags

Partnership AccountingDeceased PartnerProfit SharingTime RatioReconstitutionDeceased Partner’s ShareDeceased Partner S ShareReconstitution Retirement Or Death Of A Partner

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