Accountancy, asked by mishrajatin312, 1 month ago

premium for Goodwill are distributed according to sacrificing ratio new profit sharing ratio

Answers

Answered by TRISHNADEVI

$\\$

___________________________________________________________

$\\$

✎ When a new partner is admitted into a partnership firm, the existing partners sacrifice a part of his share of profit in favour of the new partner. Hence, the compensation to the existing partners of the firm who sacrifice a part of his share of profit in favour of the incoming partner is generally paid by making cash payment. The amount of compensation to be paid by the new partner has a direct bearing to the value of Goodwill of the firm. Such amount of compensation is called "Premium for Goodwill".

✎ The amount Premium for Goodwill to be paid by the incoming partner to the sacrificing partner(s) is calculated with reference to the total value of the the Goodwill of the firm. The amount of Premium for Goodwill is equal to the portion of share of profit of the incoming partner to the the total value of the the Goodwill of the firm.

____________________________________________

✎ When a new partner is admitted into a partnership firm the old partner suffer loss in terms of their share of profit as they sacrifice a part of their shares of profit in favour of the incoming partner. The ratio of loss suffered by the old partners may be in the old profit sharing ratio or in some other ratio. Sacrifice is the difference between what one is getting earlier and what he is getting now. Hence, in case of a partnership firm, sacrifice of an existing partner is calculated by deducting his new share of profit from his old share of profit. Therefore, when the individual sacrifice of two or more partners is expressed in terms of ratio, it is called "Sacrificing Ratio".

Previous Question

Next Question