What is New Profit Sharing Ratio?
The new profit sharing ratio is the ratio in which the old and new partners agrees to share the profit and loss percentage in future after the inclusion of the new partner is known as new profit sharing ratio. Few things that a new partner receives after his inclusion to an existing partnership company
- 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 the admission 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 :
Ajit and Vijay are partners sharing profits in the ratio of 3:2. They admitted Rahul as a new partner for 1/5 share in the future profits of the enterprise which he acquired equally from both the partners. Compute new profit sharing ratio of Ajit , Vijay and Rahul.
Rahul’s share =1/5 or 2/10
Rahul acquired equally from both the partners. Therefore, his share that is acquired = 1/2 of 1/5 = 1/10
Ajit’s new profit sharing ratio = 3/5 -1/10 = 5/10
Vijay’s new profit sharing ratio =2/5 -1/10 =3/10
Therefore, the profit sharing ratio between three partners
5/10 : 3/10 : 2/10
New profit sharing ratio of Ajit, Vijay and Rahul will be 5:3:2
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.