#Fight with Covid_19
New profit sharing ratio: The ratio in which the partners are to share the profits in future on reconstitution is known as New profit sharing ratio.
Gaining Ratio : It is the ratio in which the profit sharing ratio of gaining partners increases. It is calculated by taking difference between New profit sharing ratio and old profit sharing ratio.
Sacrificing Ratio: It is the ratio in which the profit sharing ratio of sacrificing partners decreases. It is calculated by taking difference between old profit sharing ratio and new profit sharing ratio.
Note : If old ratio-new ratio is positive it means sacrifice and if it is negative it means gain.
Accounting Treatment of Goodwill
In case of change in profit sharing ratio, the gaining partner must components the sacrificing partner by paying the proportionate amount of goodwill.
Note :
(i) Increase in the value of an Asset and decrease in the value of a liability result in profit.
Assets A/cDr.
To Revaluation
(ii) Decrease in the value of any asset and increase in the value of a liability gives loss.
Revaluation A/cDr.
To Assets A/c
(iii) For increase in the value of liabilities.
Revaluation A/cDr.
To Liabilities A/c
(Increase in value of Liability)
(iv) For decrease in the value of Liabilities
Liabilities A/cDr.
To Revaluation A/c
(Decrease in the value of Liabilities)
(v) When Revaluation account shows profit
Revaluation A/cDr.
To Partner’s Capital A/c
(Profit credited to Partner’s Capital A/c in old ratio)
(vi) In case of Revaluation Loss
Partner’s Capital A/c’sDr.
To Revaluation A/c
(Loss debited to Partner’s Capital A/cs in old ratio)