Question

what is sacrificing ratio? How is it calculated?​

Answer 1

Answer:

Sacrifice ratio is termed as a ratio in which the existing partners sacrifice for the other(s) existing partner(s) or new entering partner to gain the share of profit in the firm, as the case may be. In other words, the Sacrifice ratio is a ratio of sacrifice made by existing partner(s) to make a way for a new partner to admit in to partnership firm or for increasing the share of one or more existing partner (in case of reconstitution of firm for change in profit or loss sharing ratio).Therefore, the Sacrifice ratio arises when the old profit share of the existing partners are more than the new profit share in the newly reconstituted firm. Thus it can be computed by deducting the new ratio from the old ratio (i.e. Sacrifice ratio = Old ratio –New Ratio). However, the sacrifice ratio is significant in the following two situations and is computed as under:When the firm is reconstituted again for the change in the profit or loss sharing ratio, then Sacrifice ratio is very important for making adjustments of various items like Treatment of Goodwill without showing it in books, adjustment for revaluation of assets and liabilities without changing the book values of assets and liabilities, treatment of general reserves and other accumulated profits or losses without changing the book values of such reserves and accumulated profits or losses.Sometimes, the existing partners decide to change the existing profit or loss ratio to some new ratio to give benefit to one or more of existing partners in the future profits. In such cases, to provide the benefits, one or more existing partners have to sacrifice in some agreed ratio so as to benefit the other existing partner(s). Therefore, in such cases, normally, the old profit sharing and new profit sharing ratio of the existing partners are giving and Sacrifice ratio of the new partners is computed with the help of the following formula:Sacrifice Ratio = Old profit Sharing ratio – New Profit Sharing ratio

Explanation:

I hope this will help you

Answer 2

Answer:

The sacrifice ratio can be considered to be a financial tool that helps to ascertain the proportion of profit that existing partners of a firm has to surrender to favour a newly admitted partner.

One can calculate the sacrificing ratio by using this formula –Sacrificing ratio = Old profit sharing ratio – New profit sharing ratio

l hope this helps you...