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Question
Distinguish between sacrificing ratio and gaining ratio.
Solution
| Basis | Sacrificing ratio | Gaining ratio |
| 1. Meaning | It is the proportion of the profit which is sacrificed by the old partners in favor of new partners. | It is the proportion of the profit which is gained by the continuing partners from the retiring partner. |
| 2. purpose | It is calculated to determine the amount to be adjusted towards goodwill for the sacrificing partner. | It is calculated to determine the amount to be adjusted towards goodwill for the gaining partner. |
| 3. Time of Calculation | It is calculated at the time of admis¬sion of a new partner. | It is calculated at the time of retirement of a partner. |
| 4. Method of Calculation | It is the difference between the old ratio and the new ratio | It is the difference between the new ratio and the old ratio. |
| Sacrificing ratio = old profit sharing ratio – New profit sharing ratio | Gaining ratio = New profit sharing ratio – Old profit sharing ratio |
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| Liabilities | ₹ | Assets | ₹ | ||
| Capital accounts: | Buildings | 60,000 | |||
| Saran | 60,000 | 1,50,000 | Machinery | 40,000 | |
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| Creditors | 35,000 | Debtors | 25,000 | 24,000 | |
| General reserve | 15,000 | Less: Provision for bad debts | 1000 | ||
| Cash at bank | 44,000 | ||||
| 2,00,000 | 2,70,000 |
Karan retires on 1.1.2017, subject to the following conditions:
- Goodwill of the firm is valued at ₹ 21,000 %
- Machinery to be appreciated by 10%
- Building to be valued at ₹ 80,000
- provision for bad debts to be raised to ₹ 2,000
- Stock to be depreciated by ₹ 2,000
- The final amount due to Karan is not paid immediately.
Prepare the necessary ledger accounts and show the balance sheet of the firm after retirement.
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| Liabilities | ₹ | Assets | ₹ | |
| Capital accounts: | Premises | 4,00,000 | ||
| Rajesh | 4,00,000 | 9,50,000 | Machinery | 4,20,000 |
| Sathish | 3,00,000 | Debtors | 1,60,000 | |
| Mathan | 2,50,000 | Stock | 3,00,000 | |
| General reserve | 1,20,000 | Cash at bank | 20,000 | |
| Creditors | 50,000 | |||
| Bills payable | 1,80,000 | |||
| 13,00,000 | 13,00,000 |
Mathan retires on 31st March, 2017 subject to the following conditions :
- Rajesh and Sathis will share profits and losses in the ratio of 3:2
- Assets are to be revalued as follows;
Machinery ₹ 4,50,000, Stock ₹ 2,90,000 , Debtors ₹ 1,52,000 - Goodwill of the firm is valued at ₹ 1,20,000.
Prepare the necessary ledger accounts and the balance sheet immediately after the retirement of Mathan.
