Gaining Ratio – How is Gaining Ratio Calculated?

What is Gaining Ratio?

Gaining ratio is a type of financial tool that is helps in determining the proportion by which the remaining partners of a firm will share the profits of an existing partner in the event of his death or retirement. The ratio by which they share the profits is known as gaining ratio. It can also be defined as the difference between the old profit sharing ratio and the new profit sharing ratio.

(A) Meaning
  • It is the ratio in which all partners including new partner will share the future profits and losses.
(B) Computation
  • New Profit Sharing ratio = Old Ratio – Sacrificing Ratio
(A) Meaning
  • It is the ratio in which the remaining partners acquire the share of the retiring or deceased partner.
(B) Computation
  • Gaining Ratio = New Ratio – Old Ratio

How is Gaining Ratio Calculated?

For instance, Ajit, Dino and Gaurav are partners sharing profits in the ratio of 5:3:2. Dino retires. Ajit and Gaurav decided to share the profits of the new firm in the ratio of 3:2. The gaining ratio will be calculated as follows :
Gaining share of Continuing Partner = New share – Old share

Gaining Ratio

Q.1– Give two circumstances in which sacrificing ratio may be applied 
(i) At the time of change in the profit-sharing ratio of existing partners.
(ii) At the time of admission of a new partner.
Q.2-Why is gaining ratio calculated?
Ans: Gaining ratio is required to calculate the amount by which gaining partners’ capital accounts are to be debited to compensate for sacrificing partner. 
Gaining ratio is required to make adjustment of the present value of goodwill among partners.
Q.3-Give any one distinction between sacrificing ratio and gaining ratio.
Ans: Sacrificing Ratio is the ratio in which old partners sacrifice their share in profits in favour of new or incoming partners, Whereas, gaining ratio is the ratio in which remaining partners acquire the outgoing partner’s share.
Q.4-What do you understand by gaining partner?
Ans: The partner whose share has increased due to a change in profit-sharing ratio is known as Gaining Partner.
Q.5- What do you mean by new profit-sharing ratio? 
Ans: It is the ratio in which partners have decided to share the future profits and losses.
Q.6-Who should compensate whom in case of a change in profit-sharing ratio of existing partners? 
Ans: The partner, who gains, must compensate the partner who loses due to change in profit-sharing ratio.

Leave a Comment

Your email address will not be published. Required fields are marked *