Gaining Ratio in Partnership

Gaining ratio in partnership refers to the ratio in which the remaining partners acquire the share of the outgoing partner. It is calculated to determine the new profit-sharing ratio among the continuing partners after the retirement or death of a partner.

Calculation of Gaining Ratio

Gaining ratio is calculated by subtracting the old ratio of the outgoing partner from the new ratio of the continuing partners. The formula for gaining ratio is as follows:

Gaining Ratio = New Ratio of Continuing Partners – Old Ratio of Outgoing Partner

For example, if A, B, and C are partners in a business with a profit-sharing ratio of 3:2:1, and A retires, and the new ratio among B and C is 2:1, the gaining ratio of B and C will be:

Gaining Ratio of B and C = 2/3 + 1/3 – 2/3 = 1/3

Meaning of Gaining Ratio

Gaining ratio indicates the extent to which the continuing partners have acquired the share of the outgoing partner. It represents the increase in the profit-sharing ratio of the continuing partners after the exit of a partner.

The gaining ratio is proportional to the amount of capital contributed by the continuing partners. The partner who contributes more capital will have a higher gaining ratio than the partner who contributes less capital.

When the gaining ratio is calculated, the continuing partners' total share does not change. The outgoing partner's share is distributed among the remaining partners in the gaining ratio ratio.

Conclusion

Gaining ratio is an essential concept in partnership accounting as it helps to determine the new profit-sharing ratio among the continuing partners after the exit of a partner. It represents the increase in the share of the continuing partners and is proportional to the amount of capital contributed by them.