Question

Old Ratio \(-\) New Ratio = ________ Ratio.

Hint:

Conversely, if Old Ratio \(-\) New Ratio yields a negative value, it means the partner has gained. The formula for Gaining Ratio is usually stated as: New Ratio \(-\) Old Ratio.

Answer 1

Step 1: Understanding the Concept:
When there is a reconstitution of a partnership firm (like the admission of a new partner or a change in profit-sharing ratio), the existing partners often have to give up a portion of their profit share in favor of the new or gaining partner.

Step 2: Detailed Explanation:
If the Old Ratio is greater than the New Ratio, the difference is positive, indicating that the partner has "sacrificed" a part of their share. This sacrificing ratio is crucial for distributing the premium for goodwill brought in by a new partner among the sacrificing partners.

Step 3: Final Answer:
Old Ratio \(-\) New Ratio = Sacrificing Ratio.