New profit sharing ratio is the ratio of profits amongst the partners, which arise when there is a change in the existing profits proportion of the partners. Either there is a change in gaining ratio or change in sacrificing ratio of the partners. It is not necessary that a new profit ratio arises only in the case of admission or retirement of partner . It can also arise in the case of change in profit sharing ratio among the partners by mutual consent or in terms of the pre-existing agreement.
The Key features of the new profit ratio are as under : –
- It is related to all the partners including new partner.
- New profit ratio = Old Ratio – Sacrificing Ratio
New Profit sharing ratio Formulae :
- When new partner’s share is given : – Old ratio of concerned partner × Remaining share of old partners out of total share
- When new partner acquires/takes/purchases his share from old partners: Old ratio – Sacrificing ratio of old partners
- When old partners give/surrender a part of their share in favour of new partner – Old ratio – Surrender value of old partners
This Video computes the new profit sharing ratio amongst the partners when only profit of new partner is given
New Profit Sharing Ratio – Example 1
A , D and K are partners sharing losses / otherwise in the ratio of 3 , 9 and 1 respectively. K acquires 2/3 share from D . What will be the New profit ratio among partners will be:
Explanation : –
New Profit Sharing Ratio – Example 2
A , D and K are partners sharing profits and losses in the ratio of 5 : 5 : 2 respectively. A sacrifices 1/4 of his share and D sacrifices 1/4 of his share in favour of K . What will be the sacrificing ratio between partners.
Explanation : –
= 15 : 15 : 18
Sacrificing ratio = Old ratio – New ratio
A =5/12 – 15/48
= (20-15)/48
= 5/48
D = 5/12 – 15/48
= (20-15)/48
= 5/48
5 : 5
New Profit Sharing Ratio – Example 3
F , G and H are partners sharing profits and losses in the ratio of 1 : 3 : 3 H retired from the firm and
surrendered 1/3rd of his share of prot to F and remaining in favour of G . Calculate the new profit sharing ratio of F
and G .
Explanation : –
Old ratio between F , G and H = 1 : 3 : 3
Share surrendered by H in favour of F = (3/7) x (1/3) = 3/21
Share surrendered by H in favour of G = (3/7) – (3/21)
= (9-3)/21
= 6/21
New share of F = (1/7) + (3/21)
= (3+3)/21
= 6/21
New share of G = (3/7) + (6/21)
= (9+6)/21
= 15/21
New ratio = 6/21 : 15/21
= 6 : 15
New Profit Sharing Ratio – Example 4
G , H and I are partners sharing profit and losses in the ratio of 3 : 2 : 1. I retired from the firm and
surrendered 1/4th of his share of prot to G and remaining in favour of H . Calculate the new profit sharing ratio of G and H .
Explanation : –
Old ratio between G , H and I = 3 : 2 : 1
Share surrendered by I in favour of G = (1/6) x (1/4) = 1/24
Share surrendered by I in favour of H = (1/6) – (1/24)
= (4-1)/24
= 3/24
New share of G = (3/6) + (1/24)
= (12 + 1)/24
= 13/24
New share of H = (2/6) + (3/24)
= (8+3)/24
= 11/24
New Ratio = 13/24 : 11/24
= 13 : 11
New Profit Sharing Ratio – Example 5
D , E and F are partners sharing profits and losses in the ratio of 1/8 : 3/8 : 4/8 F died and 1/2 of his share is taken over by D and remaining by E . Calculate the new profit sharing ratio between D and E .
Explanation : –
Old ratio between D E and F = 1 : 3 : 4
Share of F taken over by D = (4/8) x (1/2) = 4/16
Share of F taken over by E =(4/8) – (4/16)
= (8-4)/16
= 4/16
New share of D = (1/8) + (4/16)
= (2+4)/16
= 6/16
New share of E = (3/8) + (4/16)
= (6+4)/16
= 10/16
New ratio = 6/16 : 10/16
= 6 : 10
Gaining ratio = The ratio in which the continuing partners acquire the outgoing (deceased ) partner share
New share – Old share
Gaining ratio between D and E = 4/16 : 4/16
= 4:4
Chapter 3 Reconstitution of a Partnership Firm – Admission of a Partner