The "old profit sharing ratio" refers to the agreed-upon distribution of profits among partners in a partnership based on a predetermined ratio. In a partnership, profits and losses are typically shared among the partners based on their profit sharing ratio, which is determined in the partnership agreement. The profit sharing ratio outlines the proportion in which the partners will share the net profits or losses of the business.

Here's a breakdown of how the old profit sharing ratio works:

Agreement: When a partnership is formed, the partners decide on the terms of their partnership agreement. This includes determining the profit sharing ratio.

Calculation: The profit sharing ratio is usually expressed as a ratio or percentage. For example, if there are two partners, A and B, and their profit sharing ratio is 2:1, it means that for every $2 of profit, partner A will receive $1, and partner B will receive $1.

Distribution of Profits: At the end of the accounting period, after calculating the net profit of the business, the profit is distributed among the partners according to their agreed-upon profit sharing ratio. Similarly, if there is a net loss, it is shared among the partners based on the same ratio.

Adjustments: The profit sharing ratio can be adjusted over time if the partners mutually agree to do so. Changes might occur due to changes in the partners' capital contributions, responsibilities, or other factors outlined in the partnership agreement.

It's important to note that the profit sharing ratio is distinct from the capital ratio. The capital ratio determines the distribution of capital among partners, while the profit sharing ratio specifically deals with the distribution of profits and losses.

Partnership agreements also typically outline how decisions related to the profit sharing ratio will be made and may include provisions for revisiting and modifying the ratio as needed. Proper documentation and clear communication among partners are essential to avoid misunderstandings and disputes regarding profit sharing in a partnership.