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In case of admission of a new partner, the sacrifice ratio is calculated as:
- a)Old ratio – New ratio
- b)New ratio – Old ratio
- c)Capital ratio – Profit ratio
- d)Old ratio ÷ New ratio
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
In case of admission of a new partner, the sacrifice ratio is calculat...
Understanding Sacrifice Ratio
When a new partner is admitted into a partnership, existing partners may need to sacrifice a portion of their profit share to accommodate the new partner. This is where the sacrifice ratio comes into play.
Definition of Sacrifice Ratio
The sacrifice ratio reflects the reduction in the share of existing partners' profits. It helps ensure an equitable distribution of profits after a new partner joins.
How to Calculate Sacrifice Ratio
To calculate the sacrifice ratio, you can use the formula:
- Sacrifice Ratio = Old Ratio - New Ratio
This method is straightforward and helps determine how much of their profit share each existing partner is giving up.
Steps for Calculation
1. Determine Old Ratio: Identify the profit-sharing ratio of existing partners before the new partner joins.
2. Determine New Ratio: Calculate the new profit-sharing ratio after the new partner's admission.
3. Calculate Sacrifice: Subtract the new ratio from the old ratio for each existing partner to find their sacrifice.
Example for Clarity
- Suppose Partner A and Partner B have an old ratio of 3:2.
- After admitting Partner C, their new ratio becomes 2:2:1.
- For Partner A:
- Old Ratio = 3/5
- New Ratio = 2/5
- Sacrifice = 3/5 - 2/5 = 1/5
- For Partner B:
- Sacrifice = 2/5 - 2/5 = 0 (no sacrifice)
In this example, Partner A sacrifices 1/5 of their profit share, while Partner B does not sacrifice any.
Conclusion
Understanding the sacrifice ratio is crucial for fair profit distribution when a new partner is admitted. Using the formula of Old Ratio minus New Ratio ensures that the existing partners' contributions are accurately accounted for.
When a new partner is admitted into a partnership, existing partners may need to sacrifice a portion of their profit share to accommodate the new partner. This is where the sacrifice ratio comes into play.
Definition of Sacrifice Ratio
The sacrifice ratio reflects the reduction in the share of existing partners' profits. It helps ensure an equitable distribution of profits after a new partner joins.
How to Calculate Sacrifice Ratio
To calculate the sacrifice ratio, you can use the formula:
- Sacrifice Ratio = Old Ratio - New Ratio
This method is straightforward and helps determine how much of their profit share each existing partner is giving up.
Steps for Calculation
1. Determine Old Ratio: Identify the profit-sharing ratio of existing partners before the new partner joins.
2. Determine New Ratio: Calculate the new profit-sharing ratio after the new partner's admission.
3. Calculate Sacrifice: Subtract the new ratio from the old ratio for each existing partner to find their sacrifice.
Example for Clarity
- Suppose Partner A and Partner B have an old ratio of 3:2.
- After admitting Partner C, their new ratio becomes 2:2:1.
- For Partner A:
- Old Ratio = 3/5
- New Ratio = 2/5
- Sacrifice = 3/5 - 2/5 = 1/5
- For Partner B:
- Sacrifice = 2/5 - 2/5 = 0 (no sacrifice)
In this example, Partner A sacrifices 1/5 of their profit share, while Partner B does not sacrifice any.
Conclusion
Understanding the sacrifice ratio is crucial for fair profit distribution when a new partner is admitted. Using the formula of Old Ratio minus New Ratio ensures that the existing partners' contributions are accurately accounted for.
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In case of admission of a new partner, the sacrifice ratio is calculat...
In case of admission of a new partner, the sacrifice ratio is calculated as:
- The old ratio minus the new ratio.
This means that when a new partner joins, the existing partners must adjust their shares of profit to accommodate the new partner. The difference between the old and new ratios indicates how much each existing partner sacrifices from their share to allow the new partner to enter the partnership.
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