In view of the coronavirus pandemic, we are making LIVE CLASSES and VIDEO CLASSES completely FREE to prevent interruption in studies
Accountancy > Retirement or Death of a Partner > New Profit Sharing and Gaining Ratio
Retirement or Death of a Partner

New Profit Sharing and Gaining Ratio

On the death or retirement of a partner, the partnership firm will be reconstituted. One major change will be the change in the profit sharing ratios of the remaining partners. Let us see how the gaining ratio and sacrificing ratio will be calculated.

Suggested Videos

Play
Play
Arrow
Arrow
ArrowArrow
Objectives of Business
Levels of Management
Slider

 

New Profit Sharing Ratio

There are different cases when partnership can have new profit sharing ratio:

  • Sometimes the partners may decide to change their existing profit sharing ratio, without any admission or retirement of partner,
  • At the time of admission of the new partner
  • At the time of retirement or death of an old partner

This may result in a gain to a few partners and loss to others. The partners who are in profit due to this change in the profit sharing ratio should compensate the sacrificing partner/partners.

  • New profit sharing ratio: Ratio in which the partners decide to share profits/losses in future.
  • Gaining ratio: Ratio in which the partners have agreed to gain their share of profit from other partners.
  • Sacrificing ratio: Ratio in which the partners have agreed to sacrifice their share of profit in favour of other partners. Sacrificing ratio= Old Ratio – New Ratio

New Profit Sharing and Gaining Ratio

Browse more Topics under Retirement Or Death Of A Partner

Gaining Ratio

Gaining ratio is calculated at the time of retirement or death of a partner. It is the ratio in which the remaining partners acquire the outgoing partner’s share of profit.

When the partner retires, the profit sharing ratio of the continuing partners gets changed. Continuing partners distribute the share of retiring partner among them.

Gaining ratio= New Ratio – Old Ratio (if positive)

Solved Examples for You

Various cases of new ratio and gaining ratio are explained as follows:

Case 1: When the share of retiring partner is acquired by old partners in an old ratio

Amit, Sumit, and Punit share profit and losses in the ratio of 3:2:1, respectively. Amit retires and the remaining partners decide to share to take Amit’s share in the existing ratio i.e. 2:1. Calculate the new ratio and gaining ratio.

Solution: The existing ratio between Sumit and Punit= 2/6 and 1/6

Amit’s ratio (retiring partner) = 3/6

Amit’s share taken by Sumit and Punit in the ratio of 2:1

Sumit gets = 3/6 * 2/3 = 6/18

Punit gets = 3/6 * 1/3 = 3/18

New ratio between Sumit and Punit is = 6:3 = 2:1

Gaining ratio= New Ratio – Old Ratio

Sumit’s gain = 2/3 – 2/6 = 2/6

Punit’s gain = 1/3 – 1/6 = 1/6

Gaining ratio = 2:1

New Ratio = 2:1

Case 2: When the share of retiring partner is acquired by old partners in old specified proportions

Amit, Sumit, and Punit share profit and losses in the ratio of 2:3:1, respectively. Amit retires and the remaining partners decide to share to take Amit’s share equally. Calculate the new ratio and gaining ratio.

Solution: The existing ratio between Sumit and Punit= 3/6 and 1/6

Amit’s ratio (retiring partner) = 2/6

Amit’s share taken by Sumit and Punit in the ratio of 1:1

Sumit gets = 2/6 * 1/2 = 1/6

Sumit’s new share = 3/6 + 1/6 = 4/6

Punit gets = 2/6 * 1/2 = 1/6

Punit’s new share = 1/6 + 1/6 = 2/6

New ratio between Sumit and Punit is = 4:2 = 2:1

Gaining ratio is given the question  i.e. 1:1

Gaining ratio = 1:1

New Ratio = 2:1

Case 3: When the share of retiring partner is acquired fully by one of the continuing partners

Amit, Sumit, and Punit share profit and losses in the ratio of 4:5:2, respectively. Amit retires and Punit acquires Amit’s share. Calculate the new ratio and gaining ratio.

Solution: Punit’s new share = 2/11 + 4/11 = 6/11

Sumit share remains unchanged = 5/11

The new ratio between Sumit and Punit is = 5:6

Gaining ratio in this case between Sumit and Punit will be

Sumit’s gain = 5/11 – 5/11 = Nil

Punit’s gain = 6/11 – 2/11 = 4/11

This shows that entire gain is taken by Punit.

Share with friends

Customize your course in 30 seconds

Which class are you in?
5th
6th
7th
8th
9th
10th
11th
12th
Get ready for all-new Live Classes!
Now learn Live with India's best teachers. Join courses with the best schedule and enjoy fun and interactive classes.
tutor
tutor
Ashhar Firdausi
IIT Roorkee
Biology
tutor
tutor
Dr. Nazma Shaik
VTU
Chemistry
tutor
tutor
Gaurav Tiwari
APJAKTU
Physics
Get Started

Leave a Reply

avatar
  Subscribe  
Notify of

Stuck with a

Question Mark?

Have a doubt at 3 am? Our experts are available 24x7. Connect with a tutor instantly and get your concepts cleared in less than 3 steps.

Download the App

Watch lectures, practise questions and take tests on the go.

Get Question Papers of Last 10 Years

Which class are you in?
No thanks.