Distinguish between sacrificing ratio and gaining tab.
Distinguishing between Sacrificing Ratio and Gaining Ratio:
1. Meaning: Sacrificing Ratio is the ratio in which a partner gives up a portion of their profit share in favour of another partner. Gaining Ratio is the ratio in which continuing partners acquire the share of the retiring or deceased partner.
2. Effect on Partner's Share of Profit: Under Sacrificing Ratio, the partner's share of profit decreases as they surrender a part of their share. Under Gaining Ratio, the partner's share of profit increases as they acquire additional share from the outgoing partner.
3. Mode of Calculation: Sacrificing Ratio is calculated as Old Share minus New Share. Gaining Ratio is calculated as New Share minus Old Share. A negative result in the formula indicates sacrifice, while a positive result indicates gain.
4. When to Calculate: Sacrificing Ratio is calculated at the time of admission of a new partner. Gaining Ratio is calculated at the time of retirement or death of a partner, especially when the new profit sharing ratio of continuing partners is specified.
Explanation
The textbook context provides clear guidance on distinguishing between these two ratios. The context explicitly lists four parameters for comparison: Meaning, Effect on Partner's Share of Profit, Mode of calculation, and When to calculate. The calculation method is clearly demonstrated in the working notes where Gaining Share = New Share - Old Share, and a negative result (like -1/10) indicates sacrifice while a positive result indicates gain. The context also mentions that the problem of calculating gaining ratio arises primarily when a partner retires and the new profit sharing ratio of continuing partners is specified.