Q.3. M N O are partners in ratio 5 : 3 : 2. O died 4 months after the closure of accounts. The firm says during last year turnover was Rs. 40 lakh and it earned a profit of Rs 8,00,000. Find the share of profit for current year to be given to S executor if, Sales for current year till the date of death is Rs 10,00,000 and profit did accrue on same basis as of last year.
Why premium brought in by an admitting partner is distributed in sacrificing ratio?
Dear Student,
Last years' Turnover was Rs 40 Lakhs and profit earned was Rs 8,00,000 that means 20% profit earned;
Sale for the current year is Rs 10,00,000 till the death of O. So O's share of Profit basis last years' profit % =
Premium brought in by admitting partner is for the purpose to compensate the loss faced by the existing partners in their profit sharing ratio due to an incoming partner and therefore premium brought in is distributed in the sacrificing ratio so as to meet up their sacrifices to the level of goodwill they have earned due to their hard work;
Regards,
Last years' Turnover was Rs 40 Lakhs and profit earned was Rs 8,00,000 that means 20% profit earned;
Sale for the current year is Rs 10,00,000 till the death of O. So O's share of Profit basis last years' profit % =
Premium brought in by admitting partner is for the purpose to compensate the loss faced by the existing partners in their profit sharing ratio due to an incoming partner and therefore premium brought in is distributed in the sacrificing ratio so as to meet up their sacrifices to the level of goodwill they have earned due to their hard work;
Regards,