Page 69 - DEBKVOL-1

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C H A P T E R

Change in Profit-Sharing Ratio

Among the Existing Partners

MEANING OF KEY TERMS USED IN THIS CHAPTER

1. Reconstitution of Reconstitution of Partnership means change in relationship
Partnership among the partners.
2. Change in Profit-sharing Change in Profit-sharing Ratio means change in ratio in which
Ratio profit or loss of the firm is shared by the partners.
3. Sacrificing Partners The partners whose shares decrease as a result of change in
profit-sharing ratio are known as Sacrificing Partners.
4. Gaining Partners The partners whose shares increase due to change in profit-
sharing ratio are known as Gaining Partners.
5. Sacrificing Ratio Sacrificing Ratio is the ratio with which the profit share of the
partners decrease.
6. Gaining Ratio Gaining Ratio is the ratio with which the profit share of the partners
increase.
7. New Profit-sharing Ratio It is the ratio in which all partners (including incoming partner) are
to share future profits.
8. Accumulated Profits Accumulated Profits mean profits of the firm that have not been
distributed among the partners.
9. Reserve Reserve means amount set aside out of profits to meet a
contingency or to strengthen the financial position of the firm.
10. Revaluation of Assets Revaluation of Assets means change in value of assets, i.e.,
present value being different from that of book value.
11. Reassessment of Liabilities Reassessment of Liabilities means reassessing the liabilities, i.e.,
whether the liability is more or less than that shown in the books of
account.

CHAPTER SUMMARY

• Meaning of the Reconstitution of a Firm: Any change in existing agreement of partnership amounts to
the reconstitution of a firm.
• Circumstances when Reconstitution of a Firm takes Place:
1. On change in the profit-sharing ratio of existing partners.
2. On admission of a new partner.
3. On retirement of an existing partner.
4. On death of a partner.
5. On amalgamation of two or more partnership firms.
• Meaning of Change in Profit-Sharing Ratio: A change in profit-sharing ratio implies a purchase of share
of profit by one partner from another partner.