Why it is necessary to ascertain new profit sharing ratio even for old partners when a new partner is admitted?
When a new partner is admitted, they acquire their share of profits from the old partners. This implies that the old partners sacrifice a portion of their profit share in favor of the incoming partner, which naturally reduces their individual shares in the firm's profits.
Since the profit sharing arrangement changes based on how the new partner acquires their share from the old partners, the old ratio becomes obsolete. It is necessary to ascertain the new profit sharing ratio to determine each partner's precise share in the reconstituted firm. This new share is calculated by deducting the specific portion sacrificed by an old partner from their previous share.
Explanation
The provided text explains that on admission, the new partner acquires their share from the old partners, causing the old partners to sacrifice a part of their profit share. Consequently, the profit sharing ratio among the old partners changes depending on their respective contributions to the new partner's share. The text explicitly states, 'Hence, there is a need to ascertain the new profit sharing ratio among all the partners.' This calculation allows for the determination of the old partners' new shares in the reconstituted firm by deducting their sacrifice from their old share.