Question

In the absence of an agreement to the contrary, it is implied that old partners will contribute to new partners share of profit in the ratio of ____________.

• A. Capital
• B. Old profit sharing ratio
• C. Sacrificing ratio
• D. Equally

Answer 1

The correct option is B Old profit sharing ratio

According to the Partnership Act 1932, a new partner can be admitted into the firm only with the consent of all the existing partners unless otherwise agreed upon. With the admission of a new partner, the partnership firm is reconstituted and a new agreement is entered into to carry on the business of the firm.

A newly admitted partner acquires two main rights in the firm– 1. Right to share the assets of the partnership firm; and 2. Right to share the profits of the partnership firm. In the case of an established firm which may be earning more profits than the normal rate of return on its capital the new partner is required to contribute some additional amount known as premium or goodwill. This is done primarily to compensate the existing partners for loss of their share in super profits of the firm.

In the absence of any information, it is implied that old partners will contribute to new partners share of profit in the ratio of old profit sharing ratio i.e., sacrificing ratio will be same as old ratio.