NCERT Textbook - Reconstitution : Retirement/Death of Partner | Accountancy Class 12 - Commerce PDF Download

 Page 1


Reconstitution of a Partnership Firm –
Retirement/Death of a Partner 3
Y
ou have learnt that retirement or death of a
partner also leads to reconstitution of a
partnership firm. On the retirement or death of a
partner, the existing partnership deed comes to an
end, and in its place, a new partnership deed needs
to be framed whereby, the remaining partners
continue to do their business on changed terms and
conditions. There is not much difference in the
accounting treatment at the time of retirement or in
the event of death. In both the cases, we are required
to determine the sum due to the retiring partner (in
case of retirement) and to the legal representatives
(in case of deceased partner) after making necessary
adjustments in respect of goodwill, revaluation of a
assets and liabilities and transfer of accumulated
profits and losses. In addition, we may also have to
compute the new profit sharing’s ratio among the
remaining partners and so also their gaining ratio,
This covers all these aspects in detail.
3.1 Ascertaining the Amount Due to Retiring/
Deceased Partner
The sum due to the retiring partner (in case of
retirement) and to the legal representatives/
executors (in case of death) includes:
(i) credit balance of his capital account;
(ii) credit balance of his current account (if any);
(iii) his share of goodwill;
(iv) his share of accumulated profits (reserves);
(v) his share in the gain of revaluation of assets
and liabilities;
LEARNING OBJECTIVES
After studying this chapter
you will be able to:
•calculate new profit
sharing ratio and  gaining
ratio of the remaining
partners after the
retirement/death of a
partner;
• describe the accounting
treatment of goodwill in
the event of retirement/
death of a partner;
• make the necessary entries
in respect of unrecorded
assets and liabilities;
• make necessary adjust-
ment for accumulated
profits or losses;
• ascertain the retiring/
deceased partner claim
against the firm and
explain the mode of its
settlement;
•prepare the retiring
partner’s loan account, if
required; and
• prepare the deceased
partner’s executor’s
account in the case of
death of a partner and the
balance sheet of a
reconstituted firm.
2024-25
Page 2


Reconstitution of a Partnership Firm –
Retirement/Death of a Partner 3
Y
ou have learnt that retirement or death of a
partner also leads to reconstitution of a
partnership firm. On the retirement or death of a
partner, the existing partnership deed comes to an
end, and in its place, a new partnership deed needs
to be framed whereby, the remaining partners
continue to do their business on changed terms and
conditions. There is not much difference in the
accounting treatment at the time of retirement or in
the event of death. In both the cases, we are required
to determine the sum due to the retiring partner (in
case of retirement) and to the legal representatives
(in case of deceased partner) after making necessary
adjustments in respect of goodwill, revaluation of a
assets and liabilities and transfer of accumulated
profits and losses. In addition, we may also have to
compute the new profit sharing’s ratio among the
remaining partners and so also their gaining ratio,
This covers all these aspects in detail.
3.1 Ascertaining the Amount Due to Retiring/
Deceased Partner
The sum due to the retiring partner (in case of
retirement) and to the legal representatives/
executors (in case of death) includes:
(i) credit balance of his capital account;
(ii) credit balance of his current account (if any);
(iii) his share of goodwill;
(iv) his share of accumulated profits (reserves);
(v) his share in the gain of revaluation of assets
and liabilities;
LEARNING OBJECTIVES
After studying this chapter
you will be able to:
•calculate new profit
sharing ratio and  gaining
ratio of the remaining
partners after the
retirement/death of a
partner;
• describe the accounting
treatment of goodwill in
the event of retirement/
death of a partner;
• make the necessary entries
in respect of unrecorded
assets and liabilities;
• make necessary adjust-
ment for accumulated
profits or losses;
• ascertain the retiring/
deceased partner claim
against the firm and
explain the mode of its
settlement;
•prepare the retiring
partner’s loan account, if
required; and
• prepare the deceased
partner’s executor’s
account in the case of
death of a partner and the
balance sheet of a
reconstituted firm.
2024-25
108 Accountancy – Partnership Accounts
(vi) his share of profits up to the date of retirement/death;
(vii) interest on his capital, if involved, up to the date of retirement/death; and
(viii) salary/commission, if any, due to him up to the date of retirement/death.
The following deductions, if any, may have to be made from his share:
(i) debit balance of his current account (if any);
(ii) his share of goodwill to be written off, if necessary;
(iii) his share of accumulated losses;
(iv) his share of loss on revaluation of assets and liabilities;
(v) his share of loss up to the date of retirement/death;
(vi) his drawings up to the date of  retirement/death;
(vii) interest on drawings, if involved, up to the date of retirement/death.
Thus, similar to admission, the various accounting aspects involved on retirement
or death of a partner are as follows:
1. Ascertainment of new profit sharing ratio and gaining ratio;
2. Treatment of goodwill;
3. Revaluation of assets and  liabilities;
4. Adjustment in respect of unrecorded assets and liabilities;
5. Distribution of accumulated profits and losses;
6. Ascertainment of share of profit or loss up to the date of retirement/death;
7. Adjustment of capital, if required;
8. Settlement of the amounts due to retired/deceased partner;
3.2 New Profit Sharing Ratio
New profit sharing ratio is the ratio in which the remaining partners will share
future profits after the retirement or death of any partner. The new share of each
of the remaining partner will consist of his own share in the firm plus the share
acquired from the retiring /deceased partner.
      Consider the following situations :
(a) normally, the continuing partners acquire the share of retiring or deceased
partners in the old profit sharing ratio, and there is no need to compute the
new profit sharing ratio among them, as it will be same as the old profit
sharing ratio among them. In fact, in the absence of any information regarding
profit sharing ratio in which the remaining partners acquire the share of
retiring/deceased partner, it is assumed that they will acquire it in the old
profit sharing ratio and so share the future profits in their old ratio. For
example, Asha, Deepti and Nisha are partners in a firm sharing profits and
losses in the ratio of 3:2:1. If Deepti retires, the new profit sharing ratio
between Asha and Nisha will be 3:1, unless they decide otherwise.
(b) The continuing partners may acquire the share in the profits of the
retiring/deceased partner in a proportion other than their old ratio, In that
case, there is need to compute the new profit sharing ratio among them.
For example: Naveen, Suresh and Tarun are partners sharing profits and
losses in the ratio of 5:3:2. Suresh retires from the firm and his share was
2024-25
Page 3


Reconstitution of a Partnership Firm –
Retirement/Death of a Partner 3
Y
ou have learnt that retirement or death of a
partner also leads to reconstitution of a
partnership firm. On the retirement or death of a
partner, the existing partnership deed comes to an
end, and in its place, a new partnership deed needs
to be framed whereby, the remaining partners
continue to do their business on changed terms and
conditions. There is not much difference in the
accounting treatment at the time of retirement or in
the event of death. In both the cases, we are required
to determine the sum due to the retiring partner (in
case of retirement) and to the legal representatives
(in case of deceased partner) after making necessary
adjustments in respect of goodwill, revaluation of a
assets and liabilities and transfer of accumulated
profits and losses. In addition, we may also have to
compute the new profit sharing’s ratio among the
remaining partners and so also their gaining ratio,
This covers all these aspects in detail.
3.1 Ascertaining the Amount Due to Retiring/
Deceased Partner
The sum due to the retiring partner (in case of
retirement) and to the legal representatives/
executors (in case of death) includes:
(i) credit balance of his capital account;
(ii) credit balance of his current account (if any);
(iii) his share of goodwill;
(iv) his share of accumulated profits (reserves);
(v) his share in the gain of revaluation of assets
and liabilities;
LEARNING OBJECTIVES
After studying this chapter
you will be able to:
•calculate new profit
sharing ratio and  gaining
ratio of the remaining
partners after the
retirement/death of a
partner;
• describe the accounting
treatment of goodwill in
the event of retirement/
death of a partner;
• make the necessary entries
in respect of unrecorded
assets and liabilities;
• make necessary adjust-
ment for accumulated
profits or losses;
• ascertain the retiring/
deceased partner claim
against the firm and
explain the mode of its
settlement;
•prepare the retiring
partner’s loan account, if
required; and
• prepare the deceased
partner’s executor’s
account in the case of
death of a partner and the
balance sheet of a
reconstituted firm.
2024-25
108 Accountancy – Partnership Accounts
(vi) his share of profits up to the date of retirement/death;
(vii) interest on his capital, if involved, up to the date of retirement/death; and
(viii) salary/commission, if any, due to him up to the date of retirement/death.
The following deductions, if any, may have to be made from his share:
(i) debit balance of his current account (if any);
(ii) his share of goodwill to be written off, if necessary;
(iii) his share of accumulated losses;
(iv) his share of loss on revaluation of assets and liabilities;
(v) his share of loss up to the date of retirement/death;
(vi) his drawings up to the date of  retirement/death;
(vii) interest on drawings, if involved, up to the date of retirement/death.
Thus, similar to admission, the various accounting aspects involved on retirement
or death of a partner are as follows:
1. Ascertainment of new profit sharing ratio and gaining ratio;
2. Treatment of goodwill;
3. Revaluation of assets and  liabilities;
4. Adjustment in respect of unrecorded assets and liabilities;
5. Distribution of accumulated profits and losses;
6. Ascertainment of share of profit or loss up to the date of retirement/death;
7. Adjustment of capital, if required;
8. Settlement of the amounts due to retired/deceased partner;
3.2 New Profit Sharing Ratio
New profit sharing ratio is the ratio in which the remaining partners will share
future profits after the retirement or death of any partner. The new share of each
of the remaining partner will consist of his own share in the firm plus the share
acquired from the retiring /deceased partner.
      Consider the following situations :
(a) normally, the continuing partners acquire the share of retiring or deceased
partners in the old profit sharing ratio, and there is no need to compute the
new profit sharing ratio among them, as it will be same as the old profit
sharing ratio among them. In fact, in the absence of any information regarding
profit sharing ratio in which the remaining partners acquire the share of
retiring/deceased partner, it is assumed that they will acquire it in the old
profit sharing ratio and so share the future profits in their old ratio. For
example, Asha, Deepti and Nisha are partners in a firm sharing profits and
losses in the ratio of 3:2:1. If Deepti retires, the new profit sharing ratio
between Asha and Nisha will be 3:1, unless they decide otherwise.
(b) The continuing partners may acquire the share in the profits of the
retiring/deceased partner in a proportion other than their old ratio, In that
case, there is need to compute the new profit sharing ratio among them.
For example: Naveen, Suresh and Tarun are partners sharing profits and
losses in the ratio of 5:3:2. Suresh retires from the firm and his share was
2024-25
109 Retirement/Death of a Partner
required by Naveen and Tarun in the ratio 2:1. In such a case, the new
share of profit will be calculated as follows:
New share of Continuing Partner = Old Share + Acquired share from
           the Outgoing Partner
Gaining Ratio 2 : 1
Share acquired by Naveen =
2 3
 of 
3 10
=
2 3 2
   = 
3 10 10
?
Share acquired by Tarun =
1
3
of 
3
10
=  
1 3 1
   = 
3 10 10
?
Share of Naveen =
5 2 7
 +  = 
10 10 10
Share of Tarun =
2 1 3
+ =
10 10 10
Thus, the new profit sharing ratio of Naveen and Tarun will be = 7 : 3.
(c) The contributing partners may agree on a specified new profit sharing
ratio: In that case the ratio so specified will be the new profit sharing ratio.
3.3 Gaining Ratio
The ratio in which the continuing partners have acquired the share from the
retiring/deceased partner is called the gaining ratio. Normally, the continuing
partners acquire the share of retiring/deceased partner in their old profit sharing
ratio, In that case, the gaining ratio of the remaining partners will be the same
as their old profit sharing ratio among them and there is no need to compute the
gaining ratio, Alternatively, proportion in which they acquire the share of the
retiring/deceased partner may be duly spacified. In that case, again, there is no
need to calculate the gaining ratio as it will be the ratio in which they have
acquired the share of profit from the retiring deceased partner. The problem of
calculating gaining ratio arises primarily when the new profit sharing ratio of
the continuing partners is specified. In such a situation, the gaining ratio should
be calculated by, deducting the old share of each continuing partners from his
new share i.e., new profit share minus old profit share, i.e., new profit share
minus old profit share. For example, Amit, Dinesh and Gagan are partners
sharing profits in the ratio of 5:3:2.
Dinesh retires. Amit and Gagan decide to share the profits of the new firm in
the ratio of  3:2. The gaining ratio will be calculated as follows :
2024-25
Page 4


Reconstitution of a Partnership Firm –
Retirement/Death of a Partner 3
Y
ou have learnt that retirement or death of a
partner also leads to reconstitution of a
partnership firm. On the retirement or death of a
partner, the existing partnership deed comes to an
end, and in its place, a new partnership deed needs
to be framed whereby, the remaining partners
continue to do their business on changed terms and
conditions. There is not much difference in the
accounting treatment at the time of retirement or in
the event of death. In both the cases, we are required
to determine the sum due to the retiring partner (in
case of retirement) and to the legal representatives
(in case of deceased partner) after making necessary
adjustments in respect of goodwill, revaluation of a
assets and liabilities and transfer of accumulated
profits and losses. In addition, we may also have to
compute the new profit sharing’s ratio among the
remaining partners and so also their gaining ratio,
This covers all these aspects in detail.
3.1 Ascertaining the Amount Due to Retiring/
Deceased Partner
The sum due to the retiring partner (in case of
retirement) and to the legal representatives/
executors (in case of death) includes:
(i) credit balance of his capital account;
(ii) credit balance of his current account (if any);
(iii) his share of goodwill;
(iv) his share of accumulated profits (reserves);
(v) his share in the gain of revaluation of assets
and liabilities;
LEARNING OBJECTIVES
After studying this chapter
you will be able to:
•calculate new profit
sharing ratio and  gaining
ratio of the remaining
partners after the
retirement/death of a
partner;
• describe the accounting
treatment of goodwill in
the event of retirement/
death of a partner;
• make the necessary entries
in respect of unrecorded
assets and liabilities;
• make necessary adjust-
ment for accumulated
profits or losses;
• ascertain the retiring/
deceased partner claim
against the firm and
explain the mode of its
settlement;
•prepare the retiring
partner’s loan account, if
required; and
• prepare the deceased
partner’s executor’s
account in the case of
death of a partner and the
balance sheet of a
reconstituted firm.
2024-25
108 Accountancy – Partnership Accounts
(vi) his share of profits up to the date of retirement/death;
(vii) interest on his capital, if involved, up to the date of retirement/death; and
(viii) salary/commission, if any, due to him up to the date of retirement/death.
The following deductions, if any, may have to be made from his share:
(i) debit balance of his current account (if any);
(ii) his share of goodwill to be written off, if necessary;
(iii) his share of accumulated losses;
(iv) his share of loss on revaluation of assets and liabilities;
(v) his share of loss up to the date of retirement/death;
(vi) his drawings up to the date of  retirement/death;
(vii) interest on drawings, if involved, up to the date of retirement/death.
Thus, similar to admission, the various accounting aspects involved on retirement
or death of a partner are as follows:
1. Ascertainment of new profit sharing ratio and gaining ratio;
2. Treatment of goodwill;
3. Revaluation of assets and  liabilities;
4. Adjustment in respect of unrecorded assets and liabilities;
5. Distribution of accumulated profits and losses;
6. Ascertainment of share of profit or loss up to the date of retirement/death;
7. Adjustment of capital, if required;
8. Settlement of the amounts due to retired/deceased partner;
3.2 New Profit Sharing Ratio
New profit sharing ratio is the ratio in which the remaining partners will share
future profits after the retirement or death of any partner. The new share of each
of the remaining partner will consist of his own share in the firm plus the share
acquired from the retiring /deceased partner.
      Consider the following situations :
(a) normally, the continuing partners acquire the share of retiring or deceased
partners in the old profit sharing ratio, and there is no need to compute the
new profit sharing ratio among them, as it will be same as the old profit
sharing ratio among them. In fact, in the absence of any information regarding
profit sharing ratio in which the remaining partners acquire the share of
retiring/deceased partner, it is assumed that they will acquire it in the old
profit sharing ratio and so share the future profits in their old ratio. For
example, Asha, Deepti and Nisha are partners in a firm sharing profits and
losses in the ratio of 3:2:1. If Deepti retires, the new profit sharing ratio
between Asha and Nisha will be 3:1, unless they decide otherwise.
(b) The continuing partners may acquire the share in the profits of the
retiring/deceased partner in a proportion other than their old ratio, In that
case, there is need to compute the new profit sharing ratio among them.
For example: Naveen, Suresh and Tarun are partners sharing profits and
losses in the ratio of 5:3:2. Suresh retires from the firm and his share was
2024-25
109 Retirement/Death of a Partner
required by Naveen and Tarun in the ratio 2:1. In such a case, the new
share of profit will be calculated as follows:
New share of Continuing Partner = Old Share + Acquired share from
           the Outgoing Partner
Gaining Ratio 2 : 1
Share acquired by Naveen =
2 3
 of 
3 10
=
2 3 2
   = 
3 10 10
?
Share acquired by Tarun =
1
3
of 
3
10
=  
1 3 1
   = 
3 10 10
?
Share of Naveen =
5 2 7
 +  = 
10 10 10
Share of Tarun =
2 1 3
+ =
10 10 10
Thus, the new profit sharing ratio of Naveen and Tarun will be = 7 : 3.
(c) The contributing partners may agree on a specified new profit sharing
ratio: In that case the ratio so specified will be the new profit sharing ratio.
3.3 Gaining Ratio
The ratio in which the continuing partners have acquired the share from the
retiring/deceased partner is called the gaining ratio. Normally, the continuing
partners acquire the share of retiring/deceased partner in their old profit sharing
ratio, In that case, the gaining ratio of the remaining partners will be the same
as their old profit sharing ratio among them and there is no need to compute the
gaining ratio, Alternatively, proportion in which they acquire the share of the
retiring/deceased partner may be duly spacified. In that case, again, there is no
need to calculate the gaining ratio as it will be the ratio in which they have
acquired the share of profit from the retiring deceased partner. The problem of
calculating gaining ratio arises primarily when the new profit sharing ratio of
the continuing partners is specified. In such a situation, the gaining ratio should
be calculated by, deducting the old share of each continuing partners from his
new share i.e., new profit share minus old profit share, i.e., new profit share
minus old profit share. For example, Amit, Dinesh and Gagan are partners
sharing profits in the ratio of 5:3:2.
Dinesh retires. Amit and Gagan decide to share the profits of the new firm in
the ratio of  3:2. The gaining ratio will be calculated as follows :
2024-25
110 Accountancy – Partnership Accounts
Amit’s Gaining Share =  
3 5 6 5 1
5 10 10 10
?
? ? ?
Gagan’s Gaining Share =  
2 2 4 2 2
5 10 10 10
?
? ? ?
Thus, Gaining Ratio of Amit and Gagan = 1:2
This implies Amit gains 
1
3
 and Gagan gains 
2
3
 of Dinesh’s share of profit.
Gaining share of Continuing Partner = New share – Old share
Do it Yourself
Distinguish between Gaining Ratio and Sacrificing Ratio in terms of:
1. Meaning
2. Effect on Partner’s Share of Profit
3. Mode of calculation
4. When to calculate
Illustration 1
Madhu, Neha and Tina are partners sharing profits in the ratio of  5:3:2. Calculate
new profit sharing ratio and gaining ratio if
1. Madhu retires
2. Neha retires
3. Tina retires.
Solution
Given old ratio among   Madhu :  Neha : Tina as 5 : 3 : 2
1. If  Madhu retires, new profit sharing Ratio between Neha and Tina will be
Neha : Tina = 3:2 and Gaining Ratio of Neha and Tina =3:2
2. If  Neha retires new profit sharing Ratio between Madhu and Tina will be
Madhu : Tina = 5:2
Gaining Ratio of Madhu and Tina = 5:2
3. If  Tina retires, new profit sharing ratio between Madhu and Neha will be:
Madhu : Neha = 5:3
Gaining ratio of Madhu and Neha = 5:3
Illustration 2
Alka, Harpreet and Shreya are partners sharing profits in the ratio of 3:2:1. Alka
retires and her share is taken up by Harpreet and Shreya in the ratio of 3:2. Calculate
the new profit sharing ratio.
2024-25
Page 5


Reconstitution of a Partnership Firm –
Retirement/Death of a Partner 3
Y
ou have learnt that retirement or death of a
partner also leads to reconstitution of a
partnership firm. On the retirement or death of a
partner, the existing partnership deed comes to an
end, and in its place, a new partnership deed needs
to be framed whereby, the remaining partners
continue to do their business on changed terms and
conditions. There is not much difference in the
accounting treatment at the time of retirement or in
the event of death. In both the cases, we are required
to determine the sum due to the retiring partner (in
case of retirement) and to the legal representatives
(in case of deceased partner) after making necessary
adjustments in respect of goodwill, revaluation of a
assets and liabilities and transfer of accumulated
profits and losses. In addition, we may also have to
compute the new profit sharing’s ratio among the
remaining partners and so also their gaining ratio,
This covers all these aspects in detail.
3.1 Ascertaining the Amount Due to Retiring/
Deceased Partner
The sum due to the retiring partner (in case of
retirement) and to the legal representatives/
executors (in case of death) includes:
(i) credit balance of his capital account;
(ii) credit balance of his current account (if any);
(iii) his share of goodwill;
(iv) his share of accumulated profits (reserves);
(v) his share in the gain of revaluation of assets
and liabilities;
LEARNING OBJECTIVES
After studying this chapter
you will be able to:
•calculate new profit
sharing ratio and  gaining
ratio of the remaining
partners after the
retirement/death of a
partner;
• describe the accounting
treatment of goodwill in
the event of retirement/
death of a partner;
• make the necessary entries
in respect of unrecorded
assets and liabilities;
• make necessary adjust-
ment for accumulated
profits or losses;
• ascertain the retiring/
deceased partner claim
against the firm and
explain the mode of its
settlement;
•prepare the retiring
partner’s loan account, if
required; and
• prepare the deceased
partner’s executor’s
account in the case of
death of a partner and the
balance sheet of a
reconstituted firm.
2024-25
108 Accountancy – Partnership Accounts
(vi) his share of profits up to the date of retirement/death;
(vii) interest on his capital, if involved, up to the date of retirement/death; and
(viii) salary/commission, if any, due to him up to the date of retirement/death.
The following deductions, if any, may have to be made from his share:
(i) debit balance of his current account (if any);
(ii) his share of goodwill to be written off, if necessary;
(iii) his share of accumulated losses;
(iv) his share of loss on revaluation of assets and liabilities;
(v) his share of loss up to the date of retirement/death;
(vi) his drawings up to the date of  retirement/death;
(vii) interest on drawings, if involved, up to the date of retirement/death.
Thus, similar to admission, the various accounting aspects involved on retirement
or death of a partner are as follows:
1. Ascertainment of new profit sharing ratio and gaining ratio;
2. Treatment of goodwill;
3. Revaluation of assets and  liabilities;
4. Adjustment in respect of unrecorded assets and liabilities;
5. Distribution of accumulated profits and losses;
6. Ascertainment of share of profit or loss up to the date of retirement/death;
7. Adjustment of capital, if required;
8. Settlement of the amounts due to retired/deceased partner;
3.2 New Profit Sharing Ratio
New profit sharing ratio is the ratio in which the remaining partners will share
future profits after the retirement or death of any partner. The new share of each
of the remaining partner will consist of his own share in the firm plus the share
acquired from the retiring /deceased partner.
      Consider the following situations :
(a) normally, the continuing partners acquire the share of retiring or deceased
partners in the old profit sharing ratio, and there is no need to compute the
new profit sharing ratio among them, as it will be same as the old profit
sharing ratio among them. In fact, in the absence of any information regarding
profit sharing ratio in which the remaining partners acquire the share of
retiring/deceased partner, it is assumed that they will acquire it in the old
profit sharing ratio and so share the future profits in their old ratio. For
example, Asha, Deepti and Nisha are partners in a firm sharing profits and
losses in the ratio of 3:2:1. If Deepti retires, the new profit sharing ratio
between Asha and Nisha will be 3:1, unless they decide otherwise.
(b) The continuing partners may acquire the share in the profits of the
retiring/deceased partner in a proportion other than their old ratio, In that
case, there is need to compute the new profit sharing ratio among them.
For example: Naveen, Suresh and Tarun are partners sharing profits and
losses in the ratio of 5:3:2. Suresh retires from the firm and his share was
2024-25
109 Retirement/Death of a Partner
required by Naveen and Tarun in the ratio 2:1. In such a case, the new
share of profit will be calculated as follows:
New share of Continuing Partner = Old Share + Acquired share from
           the Outgoing Partner
Gaining Ratio 2 : 1
Share acquired by Naveen =
2 3
 of 
3 10
=
2 3 2
   = 
3 10 10
?
Share acquired by Tarun =
1
3
of 
3
10
=  
1 3 1
   = 
3 10 10
?
Share of Naveen =
5 2 7
 +  = 
10 10 10
Share of Tarun =
2 1 3
+ =
10 10 10
Thus, the new profit sharing ratio of Naveen and Tarun will be = 7 : 3.
(c) The contributing partners may agree on a specified new profit sharing
ratio: In that case the ratio so specified will be the new profit sharing ratio.
3.3 Gaining Ratio
The ratio in which the continuing partners have acquired the share from the
retiring/deceased partner is called the gaining ratio. Normally, the continuing
partners acquire the share of retiring/deceased partner in their old profit sharing
ratio, In that case, the gaining ratio of the remaining partners will be the same
as their old profit sharing ratio among them and there is no need to compute the
gaining ratio, Alternatively, proportion in which they acquire the share of the
retiring/deceased partner may be duly spacified. In that case, again, there is no
need to calculate the gaining ratio as it will be the ratio in which they have
acquired the share of profit from the retiring deceased partner. The problem of
calculating gaining ratio arises primarily when the new profit sharing ratio of
the continuing partners is specified. In such a situation, the gaining ratio should
be calculated by, deducting the old share of each continuing partners from his
new share i.e., new profit share minus old profit share, i.e., new profit share
minus old profit share. For example, Amit, Dinesh and Gagan are partners
sharing profits in the ratio of 5:3:2.
Dinesh retires. Amit and Gagan decide to share the profits of the new firm in
the ratio of  3:2. The gaining ratio will be calculated as follows :
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110 Accountancy – Partnership Accounts
Amit’s Gaining Share =  
3 5 6 5 1
5 10 10 10
?
? ? ?
Gagan’s Gaining Share =  
2 2 4 2 2
5 10 10 10
?
? ? ?
Thus, Gaining Ratio of Amit and Gagan = 1:2
This implies Amit gains 
1
3
 and Gagan gains 
2
3
 of Dinesh’s share of profit.
Gaining share of Continuing Partner = New share – Old share
Do it Yourself
Distinguish between Gaining Ratio and Sacrificing Ratio in terms of:
1. Meaning
2. Effect on Partner’s Share of Profit
3. Mode of calculation
4. When to calculate
Illustration 1
Madhu, Neha and Tina are partners sharing profits in the ratio of  5:3:2. Calculate
new profit sharing ratio and gaining ratio if
1. Madhu retires
2. Neha retires
3. Tina retires.
Solution
Given old ratio among   Madhu :  Neha : Tina as 5 : 3 : 2
1. If  Madhu retires, new profit sharing Ratio between Neha and Tina will be
Neha : Tina = 3:2 and Gaining Ratio of Neha and Tina =3:2
2. If  Neha retires new profit sharing Ratio between Madhu and Tina will be
Madhu : Tina = 5:2
Gaining Ratio of Madhu and Tina = 5:2
3. If  Tina retires, new profit sharing ratio between Madhu and Neha will be:
Madhu : Neha = 5:3
Gaining ratio of Madhu and Neha = 5:3
Illustration 2
Alka, Harpreet and Shreya are partners sharing profits in the ratio of 3:2:1. Alka
retires and her share is taken up by Harpreet and Shreya in the ratio of 3:2. Calculate
the new profit sharing ratio.
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111 Retirement/Death of a Partner
Solution
Gaining Given, Ratio of Harpreet and Shreya = 3:2 = 
3 2
:
5 5
Old Profit Sharing Ratio of between Alka, Harpreet and Shreya 3:2:1 = 
3 2 1
: :
6 6 6
Share acquired by Harpreet =  
3 3
of
5 6
 = 
9
30
Share acquired by Shreya =  
2 3
of
5 6
 = 
6
30
New Share =  Old Share + Acquired Share
Harpreet’s New Share =  
2 9 19
6 30 30
? ?
Shreya’s  New Share =  
1 6 11
6 30 30
? ?
New Profit Sharing Ratio of Harpreet and Shreya  =  19:11
Illustration 3
Murli, Naveen and Omprakash are partners sharing profits in the ratio of
3 1
, 
8 2
and 
1
8
. Murli retires and surrenders 2/3rd of his share in favour of Naveen
and the remaining share in favour of Omprakash. Calculate new profit sharing
and the gaining ratio of the remaining partners.
Solution
Naveen Omprakash
(i) Old Share
1
2
1
8
(ii) Share Acquired by Naveen and
Omprakash from Murli =
2 3 2
of
3 8 8
?
1 3 1
of
3 8 8
?
(iii) New Share  = (i) + (ii) =
1 2
2 8
?
1 1
8 8
?
=
6
8
 or 
3
4
= 
2
8
 or 
1
4
Thus, the New profit sharing Ratio = 
3 1
:
4 4
 or 3:1, and the
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