Open In App

Difference between Sacrificing Ratio and Gaining Ratio

Improve
Improve
Like Article
Like
Save
Share
Report

After the admission of a new partner or retirement or death of old partners in a partnership business, the new profit sharing ratio is calculated for all the remaining partners of the business. The new profit sharing ratio brings a change in the ratio in which partners were previously distributing their profits or losses. Some partners get profited from this change while others had to sacrifice their share in the profit. To calculate the gaining and sacrificing share of the partners, the Gaining and Sacrificing Ratio is calculated.
Difference-between-Sacrificing-Ratio-and-Gaining-Ratio-copy-(1)

What is Sacrificing Ratio?

When a new partner is admitted, the old partners give up a certain amount of their share in the business for the new partner. Therefore, the ratio at which the partners sacrifice their share of profits is known as the Sacrificing Ratio. 

When a new partner is admitted to the business, the old partners must sacrifice their share of profits, individually or collectively, to accommodate the new partner. This means that the new partner is purchasing his/her share of profit in the business from the old partners. The partners whose share in the profits has decreased due to a change in the profit sharing ratio are called Sacrificing Partners.

Sacrificing Ratio is usually calculated at the time of admission of a new partner for the adjustment of the goodwill to be brought by a new partner.

Sacrificing Ratio is calculated as follows: 

Sacrificing Ratio = Old Ratio – New Ratio 

What is Gaining Ratio?

When any of the partners retire from the business, his/her share of profit in the business is distributed among the continuing partner resulting in a gain in their share of profit. The partners whose share in the profits has increased due to a change in the profit sharing ratio are called Gaining Partners and the ratio in which they gained is called the Gaining Ratio. 

After the retirement of a partner, the remaining partners acquire the share of the retiring partner in the agreed ratio.

Gaining Ratio is usually calculated at the time of retirement or death of a partner to pay the amount of goodwill to the retiring partner in the gaining ratio.

Gaining Ratio is calculated as follows: 

Gaining Ratio = New Ratio – Old Ratio

Difference between Sacrificing Ratio and Gaining Ratio

Basis

Sacrificing Ratio

Gaining Ratio

Meaning Sacrificing ratio refers to the ratio in which the old partners sacrifice their share in the profits for the new partner or any other partner of the business. Gaining ratio refers to the ratio in which the remaining or continuing partners acquires the share of profit from the retiring partner. 
Objective Sacrificing ratio is usually calculated at the time of admission of a new partner for the adjustment of the goodwill to be brought by a new partner. Gaining Ratio is usually calculated at the time of retirement or death of a partner to pay the amount of goodwill to the retiring partner in the gaining ratio.
Procedure The sacrificing ratio is calculated when a new partner is admitted to the company. Gaining ratio is calculated when one of the partners leaves or retires from the company or in the case of the death of any partner.
Computation The new ratio is subtracted from the old ratio in calculating the Sacrificing Ratio. The old ratio is subtracted from the new ratio in the calculation of the Gaining ratio.
Capital Effect The capital account of the sacrificing partners will be increased by the amount received in the form of goodwill contributed to the company by the new partner.  The capital account of the remaining partners will be decreased for the amount paid in the form of goodwill to the retiring partner.
Formula

Sacrificing Ratio is calculated as:

Sacrificing Ratio = Old Ratio – New Ratio 

Gaining Ratio is calculated as:

Gaining Ratio = New Ratio – Old Ratio


Last Updated : 14 Mar, 2024
Like Article
Save Article
Previous
Next
Share your thoughts in the comments
Similar Reads