Sacrificing ratio and gaining ratio are the terms used in the context of partnership firms, these ratios come into play when either a new partner enters into the partnership firm or when an old partner leaves the partnership. In order to have a better understanding of both the terms, one should know the difference between sacrificing ratio and gaining ratio –
Sacrificing Ratio VS Gaining Ratio
Meaning
The sacrificing ratio is calculated when a new partner enters into the partnership firm, with the help of the sacrificing ratio one can easily ascertain the amount of profit or loss given up by the existing partners in favor of the new partner. While gaining ratio is calculated when the existing partners is going out of partnership firm, with the help of gaining ratio one can easily ascertain the amount of profit or loss acquired by the reaming partners of the partnership firm.
Effect on Profit Sharing Ratio
In the case of sacrificing ratio the profit sharing ratio of the current partners of the partnership firm will decrease, hence in case of profits the current partners will get less profit than before. While in case of gaining ratio the profit-sharing ratio of remaining partners will increase, hence in case of profits the reaming partners will get more profit than before.
How to Calculate
The sacrificing ratio is calculated as the old profit sharing ratio less new profit sharing ratio while the gaining ratio is calculated as the new profit sharing ratio less old profit sharing ratio.
Example
An example of sacrificing ratio is suppose A and B are two partners who share profits in the ratio of 1:1 now new partner C joins the partnership firm and the new profit sharing ratio of the three partners is 4:3:2, now sacrificing ratio of A is 1/2-4/9 =1/18 and sacrificing ratio of B is 1/2-3/9 = 3/18. An example of gaining ratio is suppose A, B, and C are three partners who share profits in the ratio of 5:4:2 now partner C retires and the new profit sharing ratio of A and B is 3:2 than the gaining ratio of A is 3/5-5/11=8/55, and gaining ratio of B is 2/5 – 4/11 = 2/55
When to Calculate
The sacrificing ratio is calculated when a new partner is admitted into the partnership firm while the gaining ratio is calculated when the existing partner decides to either retire from the partnership firm or on the death of the partner.
As one can see from the above that there are many differences between the two because both are used in a different context and that is the reason why partners should double-check sacrificing or gaining ratio as future profits and loss of partners will be dependent on these two ratios.