Meaning

New profit-sharing ratio is the profit-sharing ratio after the new partner is admitted in the partnership. At the time of such admission there is change in old/existing partners’ ratio too. The share of new partner’s profit is acquired from old/existing partners’ share of profit.

Thus, New profit-sharing ratio can be stated as ratio in which all the partners, Old and New will share profits and losses of the partnership in future. The new profit-sharing ratio can be calculated as follows.

Formula

Sacrifice ratio is the ratio in which old/existing partners agrees to give away their share in profits for the new partner.

For better understanding let’s see how calculation of New profit-sharing ratio can be done:

Example : There are two partners in a partnership firm, Mr. Anil & Mr. Mukesh. Their profit-sharing ratio is 2:3. They wants to admit Mr. Nikhil as their third partner for 1/3^rd share.

In such case, Calculation of New profit-sharing ratio would be as follows:

Total profit = 1

Mr. Nikhil’s Share = 1/3

Remaining Profit = 1 – 1/3 = 2/3

So, this remaining share of 2/3 is shared among the old partners in their old ratio of 2:3.

Mr. Anil’s Share = 2/3 x 2/5 = 4/15

Mr. Mukesh’s Share = 2/3 x 3/5 = 6/15

Mr. Nikhil’s Share = 1/3 x 5/5 =5/15

So, New ratio would be 4/15: 6/15: 5/15 i.e., 6:4:5