Calculate gaining ratio, new profit-sharing ratio, and goodwill payable when a partner retires and remaining partners split the share.

Gaining Ratio Calculator

Compute gaining ratio, new ratio, and goodwill payout when a partner retires and the retiring partner’s share is taken by the remaining partners in a stated split.

Gaining (Gain) Ratio Formula

The following formulas are used in partnership accounting to determine the gaining ratio (often called the “gain ratio”) when a partner retires. 

\text{Gain}_i=\text{New Share}_i-\text{Old Share}_i\\
\text{Gaining Ratio}=\text{Gain}_A:\text{Gain}_B
  • Where Gaini is the increase in profit share of continuing partner i (dimensionless fraction/ratio)
  • New Sharei is partner i’s new profit-sharing fraction after retirement
  • Old Sharei is partner i’s old profit-sharing fraction before retirement

In words: each continuing partner’s gain is their new profit-sharing share minus their old share. The gaining ratio is the ratio of these gains among the continuing partners. If an acquisition split is given, the retiring partner’s share is distributed to the continuing partners in that split, and the gaining ratio follows the same split.

How to Calculate Gain Ratio?

The following example problem outlines how to calculate the gaining (gain) ratio.

Example Problem #1:

  1. First, determine the old profit-sharing ratio (parts).
    • The old ratio is given as: A : B : C = 3 : 2 : 1.
  2. Next, identify the retiring partner and the acquisition ratio among the continuing partners.
    • Partner C retires, and C’s share is acquired by A and B in the ratio 3 : 2.
  3. Finally, calculate each continuing partner’s gain and express it as a ratio:

Old shares: A = 3/6, B = 2/6, C = 1/6, so the retiring partner’s share is 1/6.

Gain of A = (1/6) × (3/(3+2)) = (1/6) × (3/5) = 1/10

Gain of B = (1/6) × (2/(3+2)) = (1/6) × (2/5) = 1/15

Gaining (Gain) Ratio = Gain of A : Gain of B = (1/10) : (1/15) = 3 : 2

FAQ

What is the significance of the Gain (Gaining) Ratio in business partnerships?

In partnership accounting, the gaining ratio shows the proportion in which the continuing partners increase their profit-sharing shares when a partner retires. It is commonly used to distribute adjustments (such as goodwill, reserves, or revaluation profit/loss) among the continuing partners in a fair and agreed manner.

Can the Gain Ratio be negative?

In a retirement scenario, each continuing partner’s gain should be zero or positive (because the retiring partner’s share is redistributed to the continuing partners). If a computed value is negative, that partner is actually sacrificing share under the stated “new ratio,” and the situation is better described using a sacrifice ratio rather than a gaining ratio for that partner.

How does the acquisition ratio affect the Gain (Gaining) Ratio?

The acquisition ratio states how the retiring partner’s share is taken over by the continuing partners. That split determines each continuing partner’s gain, so the gaining ratio typically matches the acquisition ratio (for example, if A and B acquire the retiring partner’s share in the ratio 3:2, their gaining ratio is 3:2).