Change in profit sharing ratio, Financial Accounting

Change in profit sharing ratio

When there is a change in profit sharing ratio, it means that some of the partners will get higher profits based on the new ratios in the future while others will loose or will get lower profits.

Those who will get higher  profits therefore need to pay for the higher profits whereas those who will get lower profits thus need to be compensated for the reduction in their profit share.

To achieve this objective, goodwill is normally introduced in the accounts by crediting the partners capital accounts according to their old profit sharing ratio (PSR) and written off again by debiting the partners capital accounts according to their new PSR.

Posted Date: 12/11/2012 6:05:19 AM | Location : United States







Related Discussions:- Change in profit sharing ratio, Assignment Help, Ask Question on Change in profit sharing ratio, Get Answer, Expert's Help, Change in profit sharing ratio Discussions

Write discussion on Change in profit sharing ratio
Your posts are moderated
Related Questions
Problem: (a) Many businesses find it useful to maintain a control account in respect of both their trade receivables and trade payables. Describe why such control accounts ar

Resulting trusts Resulting trusts occur where equity regards the property which is held by a trustee as belonging in equity to the person who transferred it to, or caused it to

Appointment of Liquidator The liquidator is appointed by the court after the above meetings have been held: if the meetings do not agree, the court must settle the issue: if no a


provide for depreciation at 10%p.a at cost for equipment and 15% at book value for vehicles

Illustration of consolidated balance sheet H Ltd owned S Ltd since the date of incorporation of S Ltd. The balance sheets of the two  companies as at 31 December 20X2 is as fo

Retirement of a partner When one of the partners retires ante the others will continue trading, the n it is important that he gets a share of the goodwill that he helped create i

Q. What do you mean by earnings per share? Anti-dilution - Condition which may increase computation of EARNINGS PER SHARE (EPS)or decrease loss per share solely due to the incl

Prepare the journal entries required to record the following transactions of a nongovernment, not-for-profit organization.   1.  Unrestricted cash contributions received duri

does closing balance of cash flow statement equals to cash in balance sheet