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.
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
Browse more Topics under Retirement Of A Partner
- Revaluation and Reserves
- Final Payment to Retiring Partner
- Treatment of Partners Loan
- Joint Life Policy – Accounting Treatment
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:
- 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.
- 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.
- 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.
- 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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