Change in profit sharing ratio, Financial Accounting

Assignment Help:

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.


Related Discussions:- Change in profit sharing ratio

Provision for bad debts, A business had always made a provision for doubtfu...

A business had always made a provision for doubtful debts at the rate of 5% of debtors. On 1 January 2017 the provision for doubtful debts brought forward from the previous year wa

Wills-executorship laws and accounts, WILLS A will is the legal declarati...

WILLS A will is the legal declaration by a person of his wishes or intentions regarding the disposition of his property after his death, duly made and executed according to the p

Explain about fiduciary, Q. Explain about Fiduciary? Fiduciary - Person...

Q. Explain about Fiduciary? Fiduciary - Person who is responsible for administration of property owned by others. Corporate management is a FIDUCIARY with respect to corporate

Explain about short-term bank loans and overdrafts, Q. Explain about Short-...

Q. Explain about Short-term bank loans and Overdrafts? Short-term bank loans and Overdrafts. The symptom are that Vertid is unlikely to obtain further finance from its bank alt

Qualitative characteristics , Since 1968, Dracula Limited has traded in Don...

Since 1968, Dracula Limited has traded in Doncaster, South Yorkshire as a manufacturer of fancy-dress and theatrical costumes. It produces a wide range of general theatrical costum

Addmission of a partner, is it compulsory to give premium for goodwill whil...

is it compulsory to give premium for goodwill while entering into a business..

Leases, Company A(lessee) will rent inventory for you for 3 years rather th...

Company A(lessee) will rent inventory for you for 3 years rather than buying it for the regular price of $240,000. Normally these units, which cost us $120,000 to produce, will las

Market value of the entire corporation, Company X is presumably doing well....

Company X is presumably doing well. The corporation's balance sheet last September 31 can be summarized as follows: Total Assets

Agreements to settle property-bankruptcy and liquidation, Agreements to set...

Agreements to settle property The trustee is not bound by such an agreement if it remains executory. If property has already been settled, the trustee can recover it unless it

The expected net present values, A company is considering investing some in...

A company is considering investing some independent proposals, The proposals with their expected net present values and standard deviations are given in the following table.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd