Question

What is the difference between sacrifice ratio and profit gaining ratio?

Hint:

Sacrifice = Old Share − New Share (at admission); Gain = New Share − Old Share (at retirement/death).

Answer 1

Step 1: Define sacrificing ratio:
Sacrificing ratio is the ratio in which the old (existing) partners give up, or ‘sacrifice’, a part of their share of profit in favour of a newly admitted partner — it is calculated as Old Share − New Share, and used to distribute the goodwill premium the new partner brings in.

Step 2: Define gaining ratio and contrast it:
Gaining ratio is the ratio in which the remaining partners gain the share of profit that was previously held by a partner who has retired or died — it is calculated as New Share − Old Share, and used to charge the remaining partners for the goodwill payable to the outgoing partner.

Final Answer:
Sacrificing ratio applies at admission (old partners give up share to the new partner); gaining ratio applies at retirement/death (remaining partners gain the outgoing partner's share).