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Question
Distinguish between sacrificing ratio and gaining ratio.
Solution
|
Basis of Difference |
Sacrificing ratio |
Gaining Ratio |
|
1. Meaning |
It is the ratio in which old partners agree to sacrifice their share of profit in favour of new partners/partner |
It is the ratio in which continuing partner acquires the share of profit from outgoing partner/partner |
|
2. Calculation |
Sacrificing Ratio = Old Ratio – New Ratio |
Gaining Ratio = New Ratio – Old Ratio |
|
3. Time |
It is calculated at the time of admission of new partners/partner. |
It is calculated at the time of retirement/death of old partners/partner. |
|
4. Objective |
It is calculated to ascertain the share of profit and loss given up by the existing partners in favour of new partners/partner. |
It is calculated to ascertain the share of profit and loss acquired by the remaining partners (of the new firm in case of retirement) from the retiring or deceased partner. |
|
5. Effect |
It reduces the profit share of the existing partners. |
It increases the profit share of the remaining partners. |
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| Liabilities | ₹ | Assets | ₹ | ||
| Capital A/cs: | Building | 50,000 | |||
| A | 30,000 | Plant and Machinery | 40,000 | ||
| B | 40,000 | Furniture | 10,000 | ||
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| 1,51,000 | 1,51,000 | ||||
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Choose the appropriate alternative from the given options:
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Answer the following question:
What is meant by 'Gaining Ratio' on the retirement of a partner?
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