Change in profit sharing ratio

Partners may agree to change their profit sharing ratio without anyone joining or leaving. This is also a reconstitution of the firm. Some partners gain a bigger share, and others sacrifice part of theirs.

For each partner: gain (or sacrifice) = new share − old share. A positive answer is a gain; a negative one, a sacrifice. For example, if the ratio changes from 8:5:3 to 5:6:5, A gives up 3/16, B gains 1/16, and C gains 2/16.

The partners who gain must compensate those who sacrifice, through goodwill: the gaining partners' capital accounts are debited with their share of goodwill (by their gain), and the sacrificing partners' are credited.

Example: the ratio changes from 3:3:2 to equal (1/3 each), and goodwill is 90,000. Suresh gains (from 2/8 to 1/3 = 2/24); the other two each give up 1/24. So Suresh pays 90,000 × 2/24 = 7,500: Suresh Dr. 7,500, To the other two 3,750 each.

As on admission, revaluation profits or losses and accumulated reserves belong to the period of the old agreement, so they are shared in the old ratio. Capitals may also be adjusted to the new ratio, if agreed.