how to calculate profit sharing ratio

Illustration 2.1

Calculate new profit sharing ratio in the following cases:

 

i)        A & B sharing profits and losses equally admit C for 1/5th share in future profits

C’s Share of profit = 1/5th of the profit of the firm.

Balance of profit available for A & B = 4/5th of the profit, which is shared by them equally.

A’s New share = 4/5 x 1/2 = 4/10

B’s New share = 4/5 x ½ = 4/10

Ratio between ABC = 4/10:4/10:1/5

= 2:2:1

 

ii)      A & B sharing profits and losses in the ratio 3:1 admit C for 1/5th share in future profits.

C’s share of profit = 1/5

Balance available for A & B = 1-1/5 = 4/5 of the profit which is shared by them in the ratio 3:1

A’s New share = 4/5 x 3/4 = 3/5

B’s New share = 4/5 x ¼ = 1/5

New Ratio = 3/5 : 1/5 : 1/5

= 3:1:1

 

iii)    A &B sharing profits and losses in the ratio 3:2 admit C for 1/5th share in future profits.

C’s Share = 1/5

Balance available for A & B = 4/5 which is shared by them in the ratio 3:2

A’s new share = 4/5 x 3/5 = 12/25

B’s new share = 4/5 x 2/5 = 8/25

C’s share         = 1/5

New profit sharing ratio = 12/25 : 8/25 : 1/5

12:8:5

 

iv)    A & B sharing profits and losses in the ratio 2/3 and 1/3 admit C into partnership giving him 1/4th share in future profits

C’s share of profit = 1/4

Balance available for A & B = 3/4

A’s new share = 3/4 x 2/3 = 2/4

B’s new share = 3/4 x 1/3 = 1/4

New profit sharing ratio = 2/4:1/4:1/4  ie. 2:1:1

 

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