What is Sacrificing Ratio in Partnership – Illustration

What is Sacrificing Ratio in Partnership

Determination of Sacrificing Ratio and Gaining Ratio is a must before any adjustments or calculations. With the help of this ratio, we will calculate the total amount of other adjustments.

The Content covered in this article: –

  • Meaning of Sacrificing Ratio
  • When to calculate Sacrificing Ratio
  • Illustration of Sacrificing Ratio

Meaning of Sacrificing Ratio: –

Sacrificing Ratio means when one or more partners selling(sacrificing) their shares of the profit of the firm to the buying or gaining partners. The difference between the old ratio and the new ratio of one partner is known as Sacrificing Share if the value of the difference is positive.

The formula of the Sacrificing Ratio: –

Sacrificing Share = Old Share – New Share

When to calculate Sacrificing Ratio: –

We need to calculate this ratio when the following two situations occur: –

  1. Change in Profit Sharing Ratio among old partners
  2. Admission of New Partner in the Partnership

Change in Profit Sharing Ratio among old partners:

Change in Profit-Sharing Ratio Among the Existing Partners means when one or more from the existing partners wants more share in the business profit then they mutually decide to change their profit sharing ratio from the earlier decided profit sharing ratio. This process is known as a reconstitution of the firm.

Admission of New Partner in the Partnership:

When old partners mutually decided to add a new partner in the partnership to raise fund for business. then to calculate the amount f the sacrifice by the old partners, we have to calculate the sacrificing ratio of the old partner who selling their share to the new partner.

Illustration: –

A, B and C are the partner in the A&B Co. ltd. The shared profit of the firm in the ratio 2:2:1. Mr D is entering the partnership as a new partner and he wants 1/4th share of the profit of the firm. The old Partners will share the remaining share of profit equally. So, you have to calculate the sacrificing ratio of the old partners.

Solution: –

Let assume Firm’s total share = Re 1

Calculate the remaining share for an old partner after the admission of Mr D: –

Remaining share of profit = 1 1
4
Remaining share of profit = 4 – 1
4
Remaining share of profit = 3
4

Calculation of New Profit Sharing Ratio among Old Partners

New Profit Share of old Partners = 3 ÷ 3
4
New Profit Share of old Partners = 3 X 1
4 3
New Profit Share of old Partners = 1 Each
4

Calculation of Sacrificing Share of Old Partners

Sacrificing Share = Old Share – New Share

Sacrificing Share of A = 2 1
5 4
Sacrificing Share of A = 8 – 5
20
Sacrificing Share of A = 3 Sacrificing
20

 

Sacrificing Share of B = 2 1
5 4
Sacrificing Share of B = 8 – 5
20
Sacrificing Share of B = 3 Sacrificing
20

 

Sacrificing Share of C = 1 1
5 4
Sacrificing Share of C = 4 – 5
20
Sacrificing Share of C = – 1 Gaining
20

Sacrificing Ratio Between A and b = 1: 1

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