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Partnership accounts

kannan (jobless) (263 Points)

07 September 2016

In case of preparing memorandum revaluation account ... why we are dividing the profit in to new PSR

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4 Replies

mohammad rasool baig (Management Consultant) (1026 Points)
Replied 07 September 2016

Because we wanted to understand the fair value of net assets of the firm & wanted to estimate the profit portion which needs to be paid by the new partner to existing partners.

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kannan (jobless) (263 Points)
Replied 07 September 2016

Thank You sir 😊

But still i have some doubts regarding this

what is the reason behind the payment of profit by the new partner?

mohammad rasool baig (Management Consultant) (1026 Points)
Replied 08 September 2016

New partner wanted to join in a partnership & share the future profits of the firm. Then new partner needs to pay full consideration for the efforts taken by the old partners for the development of firm up to that level. So that's the reason why the new partner is making payment to old partners.

For example, Land purchased by old partners @ 1,00,000 in 1898

As on the date, the land value will be 10,00,000. The profit will be 9,00,000. If any person wanted to join the firm then he needs to pay his share of profit to new partners so that he will obtain the share in the land as per the profit sharing ratio.