Reconstitution of a partnership firm

reconstitution

1. Reconstitution of a partnership firm means a change in the nature of relationship amongst members, effected through a fresh agreement under which the existing business continues. RECONSTITUTION OF A PARTNERSHIP FIRM

2. Change in the profit sharing ration of the existing partners. Admission of a partner. Retirement of a partner. Death of a partner. Amalgamation of two partnership firms. MODES OF RECONSTITUTION

3. The existing partners may decide to change their profit sharing ratio. There arises sacrifice on the part of some, while gain to others. Those who gain must compensate the others who have made the sacrifice. The compensation is in the form of proportionate share of goodwill. CHANGE IN PROFIT SHARING RATION OF TH EXISTING PARTNERS

4. The ratio in which the old partners have agreed to sacrifice their share in profit in favour of another existing partner is called the sacrificing ratio. Sacrificing ratio = Old ratio - New ratio SACRIFICING RATIO

5. The ratio in which the continuing partners decide to share the outgoing partner’s profit is called gaining ratio. Gaining ratio = New ratio – Old ratio GAINING RATIO