Q.Distinguish between the New Profit-Sharing Ratio and the Sacrificing Ratio.

The new ratio tells all partners how future profits will be shared going forward; the sacrificing ratio tells only how much of that change the OLD partners individually gave up, and is used solely to divide the incoming goodwill premium.

One governs the whole firm's ongoing profit split; the other only governs a one-time compensation among the old partners.

The New Profit-Sharing Ratio (NPSR) is a forward-looking ratio that governs how EVERY partner in the reconstituted firm — the old partners as well as the newly admitted partner — will share profits and losses from the date of admission onward. It answers the question: "going forward, what fraction of profit does each partner, including the new one, now get?"

The Sacrificing Ratio, by contrast, concerns only the OLD partners and is computed as each old partner's Old Share minus his New Share. It answers a narrower, backward-looking question: "how much of his EARLIER share did each old partner individually give up to make room for the new partner?" It has exactly one accounting purpose in this chapter — to decide the proportion in which the incoming partner's premium for goodwill is credited among the old partners, since a partner who sacrificed more is entitled to a correspondingly larger share of that compensation.

A further difference: the new ratio always includes the incoming partner as one of its terms, whereas the sacrificing ratio is expressed only between the OLD partners and never includes the new partner at all. The two ratios happen to coincide with the old profit-sharing ratio only in the simplest case, where the new partner's share is carved out of the old partners' combined share strictly in the same proportion they already shared profits; in every other case (Illustration 3 above shows one such case) the sacrificing ratio must be separately computed and can differ noticeably from both the old and the new ratio.

Students often use the two terms interchangeably in an examination answer — they must be kept distinct: one ratio decides how profit is shared FROM NOW ON by everyone, while the other decides only how a ONE-TIME goodwill compensation is split among the partners who gave something up.