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Partnership account

Tejas Jasoriya (CPT clear) (284 Points)

15 September 2015

When should we calculate Gaining ratio & sacrifice ratio and why?? Plz solve this query

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10 Replies

Varun (none) (379 Points)
Replied 15 September 2015

Whenever there is a case of admission or retirement...we need to calculate the appropriate ratio...

The journal entry(for both admission and retirement) is always:

Gaining partner a/c Dr

To sacrificing partner a/c

This is calculated to ensure fair monetary settlement to both parties...that is the existing parner and new/retiring partner...

Miss Rinkal (Student) (1304 Points)
Replied 15 September 2015

Sacrificing ratio is calculated when a new partner is entered in the firm.

Gaining ratio is calculated when a partner/s retires or death of the partner takes place.

Tejas Jasoriya (CPT clear) (284 Points)
Replied 15 September 2015

Thank you. Can anyone plse tell in which transactions to use this ratios???

Azad Korat (Senior Accountant Manager) (41 Points)
Replied 15 September 2015

Entry for Cash received as share of new partner in goodwill at the moment of admission?

Tejas Jasoriya (CPT clear) (284 Points)
Replied 16 September 2015

Do we calculate this ratios for adjustment of Reserve distribution also?If yes in which cases

Abhishek Kumar Gupta (Article) (146 Points)
Replied 16 September 2015

Sacrificing and gaining ratio is calculated whenever there is a change in the constitution of partnership. These ratios are only calculated for distribution of Goodwill and nothing else. Reserves are distributed in old ratio.

Kaushik Sekar (Article Assistant) (66 Points)
Replied 23 September 2015

When a new partner is being admitted, he is enjoying the reputation/goodwill already gained by the firm, in which he had no part. Therefore, this could affect the interests of the existing partners. In order to preserve their interest and also because they are going to sacrifice their profits for the future periods, the existing partners are paid the amount of Goodwill in their sacrificing ratio. The vice versa applies in case of retirement.

Mukund (Nil) (36 Points)
Replied 25 September 2015

No if existing partners decides to co opt a new person to the firm if that firm is profitable then the premium he pays for his share over the value of net assets will go to partners capital account as in Bank A/c dr to Partners capital account.If the new guy brings capability which enhances the partnership missing in the current firm the current partners may have to sacrifice their stake which in this case will be current partners capital account to new partner account.All accumulated gains/losses should be closed into new partners account so the firm has a new start with stakes predetermined.

Mukund (Nil) (36 Points)
Replied 25 September 2015

So let us say there is a partnership firm which has Net assets of 10lakhs,it has two partners their stake is 5 lakhs each.A new partner comes in & he agrees the firm will earn 10 lakh,11lakh,12 lakh for next 3 years he agrees to put in 10lakhs for this firm.What is the share he will be given by the current partner.