Topic new profit sharing ratio

Admission of partnership

The most important adjustment necessary for a partner into a partnership.

 Calculate new profit sharing ratio

 Goodwill and its treatment
 Re-valuation of assets and liabilities
 Adjustment regarding accumulated reserve
 Adjustment for capital account of the old partner.

When a new partner is admit in a partnership legally partnership will be end and new
partnership is created.

The calculation of new profit sharing ratio is depend upon the agreement between the
old and new partners.

How to calculate new ratio.

 We need old ratio which given in question.

 Share of new partner given in question.
 Suppose firm capital or profit part is ‘1’ by combining old partners share.
Let A,B,C are partner and D is admit as new partner. Then A+B+C=1
 New partner is admit in partnership or firm.
 We know the old partners combine share in new firm which is made after
admission of a new partner,
 Now we subtract new partner share from firm share which is 1 new partner
share is given question.
Suppose,
Let A,B,C are partner and D is admit as new partner. Then A+B+C=1 and new
partner share is 1/5 then the firm share is to be.
Firm old share (-)new partner share
1-1/5=4/5
Here 4/5 is remaining partners share which we get after subtracting combined
old firm share and new partner share
 Now calculate old partner share in a new firm after adding a partner,
 For partners .
A (old share * old combined partners share)
B(old share * old combined partners share)
 C(old share * old combined partners share)
Etc, after this we get old partner new ratio which will be combined
with new partner.

Exercise no 1
5 1 1
A,B and C are partners in a firm sharing ratio in the firm is 12 , 3 , 4 . They admit D as a new
1
partner with share 8

5 1 1
Step 1 need old ratio A,B and C partner which is 12 , 3 , 4

Step 2 need new partner share which is 1/8

Step 3 suppose A,B and C partner firm share is 1 mean A+B+C=1

1 7
Step 4 calculate old firm share, (1- - 8 ) = 8

Step 5 Now calculate old partner share in a new firm after adding a partner,
(new ratio)
5
∗7 35
For A ( 12 ) = 96
8

1
∗7
For B ( 3 = 7 )
8 24

1
∗7
For C ( 4 = 7 )
8 32

Step 6 now adding new partner and calculate new sharing ratio.
35 7 7 1
: : : solve this by proportionate method and we get new sharing
96 24 32 8
ratio which is (35 :28 :21:12)

Exercise no 2
 3 1 5
Rehman, Rehan and Rahim are partner in a firm with sharing ratio 4 : 3 : 6 . they agree to
1
add a new partner Mr. Rashid in the firm with sharing ratio 3

Calculate new sharing ratio

Exercise no 3

A,B and C are partners in a firm sharing ratio in the firm is,4 :5: 3. They admit D as a new
3
partner with share 8

Calculate new sharing ratio

Exercise no 4
Zubair and Zunair are partners in a firm sharing ratio in the firm is,4 :3. They admit
1
Mr.Zuhair as a new partner with share 5

Calculate new sharing ratio

Case no 2
In some cases incoming partner purchase his share from the old partners in different
proportionate,

Suppose A and B are partners in a firm with sharing ratio 5:3 they admit C as a new
3
partner by share 10 .if C acquire 4/20 from A and 2/20 from B then how to calculate new
sharing ratio.

Step 1 combine old partner share (5:3),(5+3=8)which 5/8 and 3/8

Step 2 new partner share from A and B

5 4 17
For A − =
8 20 40

3 2 11
For B − =
8 20 40

Step 3 A:B:C
 17 11 3
: :
40 40 10

This is new sharing ratio.