Give the meaning of Sacrificing Ratio and Gaining Ratio

In the context of a Profit and Loss Ratio, "Sacrificing Ratio" and "Gaining Ratio" are terms used to describe the changes in the profit-sharing ratio of partners in a partnership firm when there is a change in the partnership.

Sacrificing Ratio:

The Sacrificing Ratio refers to the proportion by which one or more partners reduce their share in the future profits of the firm to accommodate new partners or to adjust the profit-sharing ratio among the existing partners. This reduction in the share of profits represents the sacrifice made by the partners in favor of others.

Calculation of Sacrificing Ratio:

The Sacrificing Ratio is calculated by finding the difference between the old profit-sharing ratio and the new profit-sharing ratio for the partners who are sacrificing a part of their share in the firm.

Formula for Sacrificing Ratio:

Sacrificing Ratio = (Old Share - New Share)

Gaining Ratio:

The Gaining Ratio, on the other hand, represents the proportion by which one or more partners increase their share in the future profits of the firm due to the changes in the partnership. These partners gain a larger share of profits as a result of the adjustment.

Calculation of Gaining Ratio:

The Gaining Ratio is calculated by finding the difference between the new profit-sharing ratio and the old profit-sharing ratio for the partners who are gaining a larger share in the firm.

Formula for Gaining Ratio:

Gaining Ratio = (New Share - Old Share)

Once the Sacrificing and Gaining Ratios are determined, they are used to adjust the profit-sharing ratio among the partners to reflect the new partnership arrangement. These ratios help maintain fairness and transparency in profit distribution after any changes in the partnership firm.