Accountancy · Ch 6 — Retirement and Death of a Partner
New Profit-Sharing Ratio and Gaining Ratio
New Profit-Sharing Ratio and Gaining Ratio
Once a partner retires or dies, his or her share of profit does not disappear — it is acquired by the remaining partners, who now share the whole of future profits between themselves. Two ratios matter here.
New Profit-Sharing Ratio
The ratio in which the remaining partners will share future profits and losses after a partner retires or dies.
Gaining Ratio
The ratio in which the remaining partners acquire the outgoing partner's share of profit. It is computed, for each remaining partner, as: New Share − Old Share.
Where the question does not say how the remaining partners will divide the outgoing partner's share, the presumption is that they continue to share it between themselves in their own old mutual ratio; in that special case the gaining ratio between the remaining partners works out to be the same as their old mutual ratio.
Worked illustration. P, Q and R share profits in the ratio 5 : 3 : 2. Q retires, and P and R agree to share Q's portion between themselves in the ratio 3 : 2. Find the new ratio and the gaining ratio.
Q's share = 3/10.
- P's gain = 3/5 × 3/10 = 9/50
- R's gain = 2/5 × 3/10 = 6/50
New share of P = old share + gain = 25/50 + 9/50 = 34/50
New share of R = old share + gain = 10/50 + 6/50 = 16/50
Check: 34/50 + 16/50 = 50/50 = 1 ✓
New ratio, P : R = 34 : 16 = 17 : 8 (dividing by 2). …
The ratio in which the remaining partners share profits and losses after a partner's reti …
The ratio in which the remaining partners acquire the outgoing partner's share; computed for each remaining partner as New …