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Partnership

intermediate(ipc)course (no) (1460 Points)

29 May 2012

in partnership when should apply old ratio,gaining ratio & sacrificing ratio ?

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2 Replies

Tejaswi Kasturi (student-cpt) (427 Points)
Replied 29 May 2012

gaining ratio is used when partners existing in business get more profit than they would get before the event in question takes place, i.e. a death of a partner or retirement of a partner. the amount of profit that should have gone to the dead or retired profit will now go to the remaining partners as such they have gained in profit the amount of profit they gain when represented in the form of ratio will give gaining ratio. sacrificing ratio is used when partners in business get less profit than they would get before the event in question takes place i.e., joining of anew partner. the profits which the new partner is given would have gone to the old partners if the new partner hasn't joined the partnership as such they are sacrificing a share of their profits to the new partner. the ratio in which they are sacrificing the profits (i.e. the amount they would have gotten additionally hadn't the new partner joined the partnership represented in the form of ratio) is the sacrificing ratio.

old profit sharing ratio is applied to distribute reserves and surplus which should be disrtributed to the partners(reserves and surplus are undistributed profits and as such should be distributed to the existing partners before the composition of firm changes). also revaluation profit or loss should be distributed to the partners in old profit sharing ratio. goodwill not being an asset which is displayed in the balance sheet should be credited to the retiree or dead person and debited to existing partners in gain ratio, and should be credited to existing partners and debited to incoming new partner in the sacrificing ratio . Also when you carry out revaluation and do not want to show the assets at their new value and carry the assets at old value, the share of the partner, going out (i.e. dead or retired) should be debited to the remaing partners accounts in gaining ratio. (basically a thumb rule is if it is something present in the balance sheet we have to use old profit sharing ratio to distribute it to all partners and when you credit or debit one partner and debit or credit respectivlely all the other partners and if it is not something present in the balance sheet you should use the gaining or sacrificing ratio)