Practicing Success
On the basis of the information given answer the question below : Akhil, Karan and Sakshi are partners sharing profits in the ratio 5 : 3 : 2. Goodwill already appear in the books ₹60,000. Karan decided to retire from the firm. Goodwill of the firm was valued at ₹2,40,000. Existing partners decided to share profits in the ratio 3 : 2. |
Gaining Ratio is calculated as: |
Old share - New share Old share + gaining share New share - Old share New share + Old share |
New share - Old share |
The correct answer is Option (3) - New share - Old share. When a partner retires from a partnership, the gaining ratio is used to determine the new profit-sharing ratio among the remaining partners. The gaining ratio is calculated by deducting old ratio from new ratio. The retiring or deceased partner is entitled to his share of goodwill at the time of retirement/death because the goodwill has been earned by the firm with the efforts of all the existing partners. |