Sacrificing Ratio vs Gaining Ratio

Sacrificing Ratio

Sacrificing Ratio is the ratio of sacrifice as to the part of profit made by the old partners, in favor of the one who is entering the firm. Thus, It is the ratio of gain in the share of profit, received by the continuing partner when one of the partners resigns or leaves the firm.

What is the Gaining Ratio?

A gaining ratio is a financial tool that helps to measure the proportion in which a firm’s remaining partners acquire the retiring partner or deceased partner’s shares. It can also be described as the difference between the old profit-sharing ratio and the new profit-sharing ratio of partners.

The gaining ratio formula can be expressed as:

Gaining ratio = New profit-sharing ratio – Old profit-sharing ratio

Difference Between Gaining Ratio and Sacrificing Ratio

 Comparision Gaining Ratio Sacrificing Ratio Definition The gaining Ratio implies the ratio in which the remaining partners of the firm, share the retiring partner’s profit share. It is the proportion in which existing partners of a firm surrender a share of their profit for a newly admitted partner. Objective It comes in handy for calculating the extent of compensation that will be paid by gaining partners to the deceased partner’s legal representative or a retiring partner as goodwill or premium for goodwill. The calculation of sacrificing ratio helps to compute the amount of compensation that will be paid by newly admitted partners as goodwill or premium for goodwill to sacrificing partners. Time of calculation It is calculated in the event of death or at the time of retirement of a business partner. It is calculated when a new partner gains admission in the partnership agreement. Formula The formula of gaining ratio = New profit-sharing ratio – Old profit-sharing ratio The formula of sacrificing ratio = Old profit-sharing ratio – New profit-sharing ratio Effect It increases the remaining partners’ share of profit. It reduces old partners’ share of profit.