INTRODUCTION OF PARTNERSHIP,ADMISSION OF PARTNER,CALCULATION OF NEW RATIO AND SACRIFICING RATIO

1. Prepared by
Ms.Jissy.C
Assistant Professor
Dept of Commerce (IB

2.  UNIT I
Introduction – Admission of a partner – Treatment of
goodwill- Revaluation of Assets & Liabilities –
Calculation of ratio for distribution of profits-
Capital adjustments

4. DEFINITION
 According to section 4 of Indian partnership
act 1932 partnership is the relationship
between who have agreed to share the profits
of a business carried on by all or any of them
acting for all.

5.  ADMISSION OF PARTNER
The procedure of admitting a new partner into
the existing partnership firm as per the
terms & conditions of partnership deed is
called as ‘admission of partner
OLD PARTNERS/EXISTING
X Y
WELCOMES
Z
NEW PARTNER

6.  Inclusion of a new person as a partner to an
existing firm is called admission of a partner. The
new partner who joins the business is called the
Incoming partner or new partner
 The procedure of admitting a new partner into
the existing partnership firm as per the terms &
conditions of partnership deed is called as
‘admisson of partnerr

7.  For acquisition of the right to share the asset,
the new partner has to bring an agreed
amount of the capital
 For the right to share profit of the partnership
firm, the new partner is required to bring
some amount which is known as premium or
his share of goodwill

8. Admission of a partner necessitates the
following accounting adjustment in the books
of the firm
ADJUSTMENTS:
Calculation of new profit sharing ratio &
sacrificing ratio
 Adjustment for goodwill
 Revaluation of assets and liabilities
Adjustment with respect to reserve or
accumulated profit or losses
Adjustment for capital

9.  NEW PROFIT SHARING RATIO
 New profit sharing ratio is the ratio in which all
partners( including incoming partner )share the
profit or losses in future
New Profit Sharing Ratio Calculated as Follows:
Assume the total profit of the firm Re.1/-
Step 1
Find out balance of 1 .
Balance of 1 (Remaining Share) = 1 - Incoming Partner Share
Step 2
Calculation of New Profit Sharing Ratio.
New Ratio = Old Ratio X Balance of 1.

10.  Calculation of New Profit Sharing Ratio
1)A & B are partners share profits ratio
7:3,They admit C as a new partner, Calculate
the new ratio if C is admitted for 3/7 th
share.

11. Solution
STEP: 1 =Old Ratio 7:3
New partner share value=3/7 of Profit
Let us assume total Profit =1
Remaining share=1-3/7=(1/1-3/7 ie,7-3=4/7)
=4/7
STEP :2
New Ratio of all Partners
A, New Ratio =7/10*4/7=28/70
B’s New Ratio=3/10*4/7=12/70
C,s New Ratio=3/7(3*10=30;7*10=70)=30/70
(28:12:30) New Ratio=14:6:15

12. 2)M & N share profits in the ratio 5:3 .K joins the
firm for 3/8 th Share of Profit. Calculate the
new ratio
Solution
Old Ratio=5:3
New Share =3/8
Let us Assume the total profit =1
Remaining Share=1-3/8(1/1-3/8,8-3=5/8)=5/8
M New share =5/8*5/8= 25/64
N New share=3/8*5/8= 15/64
K, New Share=3/8(3*8=24/64;8*8=64)= 24/64
New Ratio=25:15:24

13. 3)A & B share Profit in the ratio 7:3.They admit C
into Partnership with 3/7 share. He acquires 2/7
Share from A and 1/7 from B. Calculate new ratio
of Partners.
Solution : Old Ratio =7:3
A share of Surrender value =2/7
Therfore; A, share =7/10-2/7= 49-20/70 =29/70
B Share of Surrender Value=1/7
B ,Share=3/10-1/7=21-10/70=11/70
C, Share=3/7(3*10=30,7*10=70)=30/70
New Ratio=29:11:30

14. SACRIFICING RATIO
The ratio in which the old partners have agreed
to sacrifice their share in profit in favour of
another existing partner or a new partner is
called the sacrificing ratio
Sacrificing Ratio= Old Ratio-New ratio

15. 1.Rohit and Mohit are partners in a firm sharing
profits in the ratio of 5:3. They admit Bijoy as a
new partner for 1/7 share in the profit. The new
profit sharing ratio will be 4:2:1. Calculate the
sacrificing ratio of Rohit and Mohit.
Solution
Rohit’s old share = 5/8 (SR=OR-NR)
Rohit’s new share = 4/7
Rohit’s sacrifice=5/8-4/7(32-35/56,3/56)
=3/56
Mohit’s old share = 3 /8
Mohit’s new share = 2/7
Mohit’s sacrifice = 3 /8−2/7 =(21-16/56=5/56)
=5/56
Sacrificing ratio among Rohit and Mohit will be 3:5.

16.  4)A & B are partners sharing profits in the ratio
of 5:3.They decided to admit C into the firm
giving him 1/6 the share .Calculate new ratio &
Sacrificing ratio
Old partner ratio =5:3,New partner C’ s
Share=1/6
Remaining Share =1-1/6=5/6
A’s New Share =5/8*5/6=25/48
B, s New share =3/8*5/6=15/48
C,s New Share=1/6(1*8=8,6*8=48)=8/48
Therefore New ratio=25:15:8

17.  Calculation of Sacrificing ratio
SR=OR-NR
Old ratio=5:3
New ratio=25:15:8
A’s Sacrificing ratio =5/8-25/48=(5*6=30;8*6=48)
30-25/48=5/48
B,s Sacrificing ratio =3/8-15/48=(3*6=18;8*6=48)
18-15/48=3/48
Therefore Sacrificing Ratio =5:3