• PS is the retiring partners share ($) • AR is the acquisition ratio To calculate the gain ratio, multiply the retiring partners’ share by the acquisition ratio. ## How to Calculate Gain Ratio? The following example problems outline how to calculate Gain Ratio. Example Problem #1: 1. First, determine the retiring partners’ share ($).
• The retiring partners’ share ($) is given as: 50,000. 2. Next, determine the acquisition ratio. • The acquisition ratio is provided as: .25. 3. Finally, calculate the Gain Ratio using the equation above: GR = PS * AR The values given above are inserted into the equation below and the solution is calculated: GR = 50,000 * .25 = 12,500 ($)

## FAQ

What is the significance of the Gain Ratio in business partnerships?

The Gain Ratio is significant in business partnerships as it helps in determining the profit or gain share that a retiring partner is entitled to receive based on their share in the partnership and the acquisition ratio. This calculation ensures a fair distribution of profits or gains, especially when a partner exits the business, thereby maintaining transparency and harmony among the remaining partners.

Can the Gain Ratio be negative?

No, the Gain Ratio cannot be negative because it is calculated based on the retiring partner’s share and the acquisition ratio, both of which are positive values. The retiring partner’s share represents their stake in the partnership’s profits or gains, and the acquisition ratio is a positive coefficient that determines how much of that share the retiring partner is entitled to. Therefore, the result of this calculation, the Gain Ratio, is always a positive value.

How does the acquisition ratio affect the Gain Ratio?

The acquisition ratio directly affects the Gain Ratio as it determines the proportion of the retiring partner’s share that will be recognized as their gain upon leaving the partnership. A higher acquisition ratio means that the retiring partner will receive a larger portion of their share as gain, while a lower acquisition ratio results in a smaller portion of their share being recognized as gain. Essentially, the acquisition ratio adjusts the Gain Ratio to reflect the agreed terms of the partner’s exit from the business.