The difference between new profit sharing ratio and old profit sharing ratio at time of retirement is ________ratio
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Profit Sharing Ratio
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Meaning of New Profit Sharing Ratio
New profit sharing ratio is the proportion in which the old partners, as well as the new partners of a firm, agree to distribute the future profit of that organisation.
It is necessary to decide the new profit-sharing ratio when a new partner joins a business because in future he/she will be entitled to share the profits.
However, if this ratio is not agreed at the time of admission of a new partner, the profit will be distributed equally among all the partners, existing and new.
When is New Ratio Introduced?
There are different scenarios when a business can have a new ratio.
If the partners want to revise their existing profit sharing ratio without inclusion or exit of any member
When a new partner joins a firm
At the time of death or retirement of an old partner
However, the calculation of the new profit sharing ratio in retirement is done simply by removing that retiring person’s share. In this scenario, the gaining ratio of the continuing members will be = retiring person’s share* Acquisition ratio.
Find out what is Acquisition Ratio and Sacrificing Ratio to solve advanced problems on this topic.
Explanation:
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