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Class-XII

Accountancy

Topic – change in profit sharing ratio

Change in Existing Profit Sharing Ratio

Meaning of Partnership and Reconstitution of Firm

Partnership: As per Section 4 of the Indian Partnership Act, 1932, “Partnership is

the relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all.”

Reconstitution of firm: Partnership agreement defines the relationship among
the partners and whenever there is change in relationship, it results in

reconstitution of the firm. Such reconstitution of the firm always leads to change
in profit-sharing ratio among the partners. A firm is reconstituted, whenever

there is a:

i. Change in the profit-sharing ratio among the existing partners.

ii. Admission of a new partner.

iii. Retirement of an existing partner.

iv. Death of a partner.

v. Amalgamation of two or more partnership firms

Concept of Change in the Profit Sharing Ratio among existing partners

Meaning:

I.It means reconstitution of the firm whereby the profit-sharing ratio among all
the partners changes.