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Reconstitution of a Firm

Any change in the existing agreement of partnership amounts ot reconstitution of the partnership firm. There are five occasions when a reconstitution of a partnership take place:

  1. Change in profit sharing ratio between the existing partners
  2. Admission of a new partner
  3. Retirement of a existing partner
  4. Death of a partner
  5. Amalgamation of two partnership firms

Sacrifing Partners: The partners whose shares have been decreased as a result of change are known as Sacrifing partners
 

Sacrifing Ratio: The ratio in which the partners have agreed to sacrifice their shares in profit in favour of other partners is known as sacrifing ratio.
 

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Gaining Partners:
 The partners whose shares have been increased as a result of change are known as gaining partners.


Gaining Ratio:
 The ratio in which the partners have agreed to gain their shares in profit from other partners is known as gain ratio.
 

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New profit sharing ratio : The new ratio in which all the partners share the future profits and losses is known as as new profit sharing ratio.





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