Question

Write down the different cases of calculation of new profit sharing ratio? ​

Answer 1

ANSWER :

The ratio or proportion in which profit of a business is usually taken as unit or one and the share of each partner in such unit profit is called profit sharing ratio or proportion.

The different cases when the calculation of New Profit Sharing Ratio is required are as follows :-

• ✎ Admission of a new partner

• ✎ Change in the profit sharing ratio of existing partners

• ✎ Retirement of an existing partner

• ✎ Death of a partner

• ✎ Amalgamation of two partnership firm

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KNOW MORE :

In case of Admission of a new partner into a partnership firm, following are the different situations where New Profit Sharing Ratio is calculated in different manner :-

• Situation 1 : When the old profit sharing ratio of old partners and the share of the new partner is given : When the old profit sharing ratio of old partners and the share of the new partner is given without mentioning any change in the shares of the old partners, it is presumed that the old partners will continue to share the profit or loss remaining after giving the share to the new partner in their old profit sharing ratio.

• Situation 2 : When the new partner takes his share from the old partners in certain proportions : When the new partner takes his share from the old partners in certain proportions, the old partners' share is calculated by deducting the proportions surrounded by each of the old partners from their old share.

• Situation 3 : When the old partners surrender a fraction of their share for the new partner : When the old partners surrender a fraction of their respective shares, the fraction of share surrendered by the old partners is first calculated and in this surrendered share is to be deducted from the share of the old partner from their original share in order to find their respective shares in the firm after the admission of the new partner. The share of the new partner will be the total of the friction of shares surrendered by the old partners.

• Situation 4 : When the new partner acquires his share from one partner only : When the new partner acquires his share from one partner only, the particular old partner's share is calculated by deducting the proportions surrounded by him and the remaining partner share will be the same as before.

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In case of Retirement of an existing partner from a partnership firm, following are the different situations where New Profit Sharing Ratio is calculated in different manner :-

• Situation 1 : When one partner retires and nothing is stated about the new profit sharing ratio between the remaining partners : When one partner retires and nothing is stated about the new profit sharing ratio between the remaining partners, the profit sharing relationship between the remaining partners remains the same. It means that the remaining partners continue to share profit in the same old ratio as between themselves. In such case it is assume that the remaining partners acquire the share of the retiring partner in the old ratio.

• Situation 2 : When the remaining partners take over the share of retiring partner in a specified ratio : When the remaining partners take over the share of retiring partner in a specified ratio, the share acquired or purchased by the remaining partners will be added to his original share to find out the new share of the remaining partners. The ratio of such new share will be the new profit sharing ratio.