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New Profit Sharing and Sacrificing Ratio (Part A) Video Lecture | Accounting for A Level

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FAQs on New Profit Sharing and Sacrificing Ratio (Part A) Video Lecture - Accounting for A Level

1. What is profit sharing and sacrificing ratio in commerce?
Ans. Profit sharing ratio refers to the proportion in which the net profit of a partnership firm is distributed among its partners. On the other hand, sacrificing ratio refers to the proportion in which the partners agree to reduce their share of profits in favor of a new or existing partner.
2. How is profit sharing ratio calculated?
Ans. The profit sharing ratio is calculated by dividing the share of each partner in the total partnership capital. For example, if Partner A contributes $50,000 and Partner B contributes $30,000 to the partnership capital, their profit sharing ratio may be calculated as 5:3.
3. What factors determine the profit sharing ratio in a partnership?
Ans. The profit sharing ratio in a partnership is typically determined based on various factors such as the capital contribution of each partner, the agreement between the partners, the experience and expertise of the partners, the nature of the business, and any special rights or privileges given to specific partners.
4. How does the sacrificing ratio affect profit sharing in a partnership?
Ans. The sacrificing ratio in a partnership determines the extent to which partners agree to reduce their share of profits in favor of a new or existing partner. This ratio directly impacts the profit distribution among partners. A higher sacrificing ratio means partners are sacrificing a larger portion of their individual profits, resulting in a redistribution of profits in favor of other partners.
5. Can the profit sharing and sacrificing ratio be changed in a partnership?
Ans. Yes, the profit sharing and sacrificing ratio can be changed in a partnership with the mutual consent of all partners. If the partners agree to alter the profit sharing ratio, a new agreement should be drafted and signed by all partners. However, any changes to the ratio should be carefully considered, as they may affect the financial interests and expectations of the partners involved.
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