What is the difference between sacrificing ratio and gaining ratio in partnership?

Question

Class 12 Accountancy: I get confused about when to use sacrificing ratio and when to use gaining ratio, especially for goodwill adjustment.

GradeHunt_Team · Answer

Sacrificing ratio is mainly used when a partner is admitted. Gaining ratio is mainly used when a partner retires or dies. When existing partners change their profit-sharing ratio, both arise: the gaining partners compensate the sacrificing partners for goodwill.

Sacrificing ratio = Old share - New share
- Calculated for the old partners on admission of a new partner.
- It shows how much of their share each old partner gives up for the new partner.
- The new partner's share of goodwill is credited to the old partners in this ratio.

Gaining ratio = New share - Old share
- Calculated for the continuing partners on retirement or death of a partner.
- It shows how much extra share each remaining partner gets.
- The continuing partners' capital accounts are debited in this ratio for the retiring partner's share of goodwill.

Example (admission):
A and B share 3:2. C is admitted for 1/5, and the new ratio is 2:2:1.
A: old 3/5, new 2/5, sacrifice 1/5
B: old 2/5, new 2/5, sacrifice 0
Sacrificing ratio = 1:0, so all of C's goodwill goes to A.

Example (retirement):
A, B, C share 2:2:1. A retires, and B and C will share 3:2.
B gains 3/5 - 2/5 = 1/5; C gains 2/5 - 1/5 = 1/5.
Gaining ratio = 1:1.

Exam tip: always calculate the ratio in a separate working, even if it looks obvious. If the question gives the new ratio, never assume the sacrifice is in the old ratio. A wrong ratio makes every goodwill entry that follows wrong too.

What is the difference between sacrificing ratio and gaining ratio in partnership?

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