Retirement of Partner Notes2

Study Material & Notes for the Chapter 6

Partnership - Retirement of Partner


A.  Change in Profit-Sharing Ratio

Change in the Profit-sharing ratio is required as the partner who retires surrenders his/her share in favour of the continuing/remaining partners.

B.  New Profit-Sharing Ratio

New Profit-Sharing ratio is the ratio in which the continuing/remaining partners decides to the share the profits of the firm in future. It is decided as per the mutual agreement amongst the continuing/remaining partners.

C.  Gaining Ratio

At the time of retirement of an existing partner, the remaining or continuing partners acquire the share of profits from the retiring or outgoing partner. The ratio in which remaining partners acquire retiring partner’s profit share is known as gaining ratio.

D.  Purpose of Gaining Ratio computation

Gaining ratio is required because the remaining partners will pay the retiring partner’s share of goodwill in their gaining ratio.

E.  Gaining/Sacrificing Share

Gaining /(Sacrificing) Share = New Share – Old Share

  • If a Partner’s New Share – Old Share is Positive(+) figure then the partner has made a gain
  • If a Partner’s New Share – Old Share is Negative(-) figure then the partner has made a sacrifice
F.  New Profit Sharing ratio and Gaining/Sacrificing Share

Case-1 Retiring Partner’s Share Distributed in Existing Ratio – Silent on new ratio

  • In this case, retiring partner’s share is distributed in existing ratio amongst the remaining partners.
  • The remaining partners continue to share profits and losses in the existing
  • Gaining Ratio is the existing ratio amongst the remaining partners

Important to Note:

  • In absence of any information in the question, it will be presumed that retiring partner’s share has been distributed among the remaining partners in existing (old) ratio

Case-2 Retiring partner’s share distributed in Specified proportion – OF  Case

  • Sometimes the remaining partners purchase the share of the retiring partner in specified ratio.
  • The share purchased by them is added to their old share and the new ratio is arrived at.
  • Gaining Ratio is the specified share acquired from the Retiring partner

Case-3 Retiring partner’s share is taken by one of the Partners

  • The retiring partner’s share is taken up by one of the remaining partners.
  • In this case, the retiring partner’s share is added to that of existing partner’s share. Only his/her share changes.
  • The other partners continue to share profit in the existing ratio.
  • Gaining Ratio – One partner acquires full share of the Retiring partner
G.  Distinction between sacrificing ratio and gaining ratio?
Table 6.2.G-min
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