Reconstitution of a FirmAny 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:
- Change in profit sharing ratio between the existing partners
- Admission of a new partner
- Retirement of a existing partner
- Death of a partner
- 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.
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.
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.