New Profit Sharing Ratio

What is New Profit Sharing Ratio?

New profit-sharing ratio or NPSR is the ratio in which all the partners are including the share of the new partner. The future gain and loss is termed as new profit-sharing ratio. Sacrificing ratio is the ratio in which the old partners have consented to sacrifice.

When a novice partner is admitted :

  • He obtains his share in profits from the old partners. To put it in other words, on the admission of a new associate, the old partners forego a portion of their gain in kindness for the new associate partner
  • If nothing is stated as to how does the new associate partner obtain his share from the old partners; it may be presumed that he acquires it from them in their gain (profit) sharing ratio
  • What would be the share of new associate partner and how will he obtain it from the currently existing partners is determined collaboratively among the old partners and the new associate partner
  • Therefore, there is a requirement to determine the new profit sharing ratio between all the associate partners. This relies upon how does the new associate partner obtains his share from the old partners for which there are many feasibilities
  • In any scenario, on addition of a new partner, the profit sharing ratio between the old partners will differ, keeping in mind their corresponding contribution to the profit sharing ratio of the new incoming partner

Now, let us comprehend it with the help of the following illustration given below :

Anup and Vishnu are partners sharing profits in the ratio of 3:2. They admitted Sushant as a new partner for 1/5 share in the future profits of the enterprise. Compute new profit sharing ratio of Anup, Vishnu and Sushant.

Solution :

Sushant’s share =1/5

Remaining share = 1-1/5=4/5

Anup’s new share = 3/5 of 4/5 =12/25

Vishnu’s new share =2/5 of 4/5 =8/25

New profit sharing ratio of Anup, Vishnu and Sushant will be 12:8:5

Note: It has been assumed that the new partner acquired his share from old partners in old ratio

The above mentioned is the concept that is explained in detail about New Profit Sharing Ratio for the class 12 Commerce students. To know more, stay tuned to BYJU’S.