Practicing Success
What does the sacrificing ratio refer to in the admission of a new partner? |
The ratio at which the existing partners sacrifice their share in super profits The ratio at which the new partner sacrifices their capital contribution The ratio at which the firm's profits are redistributed among the partners The ratio at which the firm's assets and liabilities are adjusted during reconstitution |
The ratio at which the existing partners sacrifice their share in super profits |
In the context of admitting a new partner to a partnership firm, the sacrificing ratio refers to the ratio at which the existing partners sacrifice their share in super profits. Super profits are the profits earned by the partnership firm that exceed the normal rate of return on its capital. When a new partner is admitted, the existing partners may have to adjust their profit sharing ratios to accommodate the new partner's share in the firm. This adjustment often involves sacrificing a portion of their own share in the super profits to allocate it to the new partner. The sacrificing ratio determines the proportion at which the existing partners relinquish their super profits to make room for the new partner. It reflects the relative sacrifice made by each existing partner in terms of the reduction in their individual share of super profits. The sacrificing ratio is an important consideration in determining the new profit sharing ratios among the partners and ensuring fairness in the distribution of profits after the admission of the new partner. |