— Kishore V, SME and ACW at Edumarz
- The ratio in which the existing partners give up their portion of profit in favour of the new partner(s) is referred to as the sacrificing ratio.
- The difference between the old and new ratios of the former partners is used to compute it.
Ratio sacrificed = old ratio – new ratio
Need for Calculation:
- Calculating this ratio is critical because the new partner must compensate the old partner for foregoing a portion of the earnings.
- The new partner compensates the old partners by paying them in the form of goodwill, which is distributed among the old partners in proportion to their sacrifice ratio.