What is Sacrificing Ratio?
Sacrificing ratio is the ratio where the old partners give their consent to forego their share of gains in kindness of the new partner. The forego (sacrifice) by a partner is equivalent to :
|Old Share of Profit – New Share of Profit|
Sacrificing ratio is computed during the time of addition or admission of a new associate partner. It is the portion in which old partners forego’s their share in kindness of the new associate.
A new partner is needed to :
- Recompense the old partner’s for their forfeiture of share in the gains of the enterprise for which he gets in an supplemental amount known as goodwill or premium
- This amount is apportioned by the current partners in the ratio in which they sacrifice their shares in kindness of the new associate partner which is known as sacrificing ratio
This ratio is normally given as consented among the partners which can be the old ratio, equal amount of sacrifice or a defined ratio. The difficulty appears where the ratio in which the novice partner obtains his share from the old partners is not defined. Rather, the NPSR (new profit sharing ratio) is provided. In such a scenario, the sacrificing ratio is to be functioned out by subtracting each associate partner’s new share from his old share.
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.