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Retirement of a Partner

Calculation of Gaining Ratio

A partnership firm does not dissolve on the retirement of a partner. Although the partnership among the partners dissolves. A partner may decide to retire due to illness, old age or any other reasons. At the time of retirement, revaluation of the assets and liabilities of the firm, surrender of the joint life policy and calculation of Gaining Ratio is necessary.

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Calculation of Gaining Ratio

When a partner retires, the remaining partners gain in terms of the profit sharing ratio. This gain is called the Gaining Ratio. When a partner retires, remaining partners distribute his share of profit among themselves.

Calculation of Gaining Ratio

Thus, we can say that continuing or remaining partners gain or benefit from the retirement of a partner. The calculation of Gaining Ratio is done in the following two ways:

 

Case 1: The new profit sharing ratio is not given

In this situation, we calculate the new profit sharing ratio of the remaining partners by simply removing the retiring partner’s share.

Gaining Ratio = New Ratio – Old Ratio

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Case 2: The gains of the remaining partners are given

In this situation, we calculate the new profit sharing ratio of the remaining by adding their old profit sharing ratio and respective gain.

New Ratio = Old Ratio + Gain

Case 3: The ratio in which the remaining partners acquire the share of the retiring partner is given

In this situation, we calculate the gain by the remaining partners by multiplying the ratio in which they acquire retiring partners share with the retiring partners share.


Gaining Ratio = Retiring partner’s share x Acquisition Ratio

New Ratio = Old Ratio + Gaining Ratio

Solved Example on Calculation of Gaining Ratio

Calculate the Gaining ratio and the New Ratio of the remaining partners in each of the following situations:

  1. Atul, Ami, and Anish are partners sharing profits and losses in the ratio of 1/2, 3/10 and 1/5 respectively. Ami retires and Atul and Anish decide to share profits and losses in the ratio of 3:2. Calculate the Gaining Ratio of Atul and Anish.
  2. Babita, Chhaya, Dolly, and Geet are partners in a firm sharing profits and losses in the ratio of 1/3, 1/6, 1/3 and 1/6 respectively. Dolly retires and the remaining partners decide to share profits and losses equally in future. Calculate the Gaining Ratio of Babita, Chhaya, and Geet.
  3. Gul, Sheena, and Meet are partners sharing profits and losses in the ratio of 5: 4:2. Sheena retires and Gul and Meet decide to share the future profits and losses in the same ratio as in between Sheena and Meet. Calculate the new ratio and the gaining ratio between Gul and Meet.
  4. Sanjay, Anil, and Salman are partners sharing profits and losses in the ratio of 8/18: 2/6: 4/18. Anil retires and surrenders 1/6th of his share in favor of Sanjay and remaining in favor of C. Calculate the new profit sharing ratio and the gaining ratio between Sanjay and Salman.

Ans:

1.

Particulars Atul Anish
a. New share 3/5 2/5
b. Old share 1/2 1/5
c. Gain (a – b) 1/10 2/10

Therefore,  $$ \text{Gaining Ratio of Atul and Anish} = \frac{1}{10} ÷ \frac{2}{10} = 1:2 $$

2.

Particulars Babita Chhaya Geet
a. New share 1/3 1/3 1/3
b. Old share 1/3 1/6 1/6
c. Gain (a – b) 1/6 1/6

Thus,  $$ \text{Gaining Ratio of Chhaya and Geet} = \frac{1}{6} ÷ \frac{1}{6} = 1:1 $$

However, Babita neither gains nor loses.

3.

Particulars Gul Meet
a. New share 2/3 1/3
b. Old share 15/36 7/36
c. Gain (a – b) 9/36 5/36

Thus, $$ \text{Gaining Ratio of Gul and Meet} = \frac{9}{36} ÷ \frac{5}{36} = 9:5 $$

4.

Particulars Sanjay Salman
a. Share surrendered by Anil \(\frac{1}{6}\) x \(\frac{2}{6}\) = \(\frac{2}{36}\) \(\frac{5}{6}\) x \(\frac{2}{6}\) = \(\frac{10}{36}\)
b. Old share 8/18 4/18
c. New share (a + b) 1/2 1/2

 

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