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Change in Profit-Sharing Ratio — Part 1: Sacrificing and Gaining Ratios, Goodwill

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Lesson

Change in Profit-Sharing Ratio among Existing Partners

Part 1 — sacrificing and gaining ratios and the goodwill adjustment.

In this lesson you will

Explain why existing partners change their profit-sharing ratio and what it sets off
Calculate each partner's sacrifice or gain and the sacrificing and gaining ratios, including surrender of a share
Pass the goodwill adjustment entry under AS 26, writing off any goodwill already in the books

Part 1 at a glance

Concept

Sacrificing and gaining shares

Sacrificing ratio = old ratio − new ratio.
Gaining ratio = new ratio − old ratio.

Total sacrifice always equals total gain.
Term	Formula	Who	Used for
Sacrificing share	Old share − new share (positive)	Partners whose share falls	Compensation received for goodwill
Gaining share	New share − old share (positive)	Partners whose share rises	Compensation paid for goodwill
No change	Old share = new share	Partner unaffected	Left out of the goodwill entry