Difference between Sacrificing Ratio and Gaining Ratio
What is Sacrificing Ratio?
The ratio of sacrifice in favor of a partner who leaves the firm is known as the sacrificing ratio. When any partner leaves or resigns from the firm, then some partners gain and other partners lose to compensate their leaving profit share which leads to variation in the existing sharing ratio. Therefore, continuing partners make sacrifices for those who leave the firm.
What is Gaining Ratio?
The share of profit obtained by a continuing partner after compensating his exiting partner is known as the gaining ratio. If any partner buys the share from another partner and enters into a firm, then both partners make sacrifices. So if a continuing partner leaves or resigns from the firm after selling his share to an outsider then only he would suffer a loss
Sacrificing Ratio vs Gaining Ratio: What is the difference?
- Sacrifice ratio is the ratio of sacrifice in favor of a partner who is leaving or resigning from the firm, whereas the Gaining Ratio is the share obtained by a continuing partner after compensating his/her exiting partner.
- When any partner buys the share of profit from another partner and enters into a firm, then both partners make sacrifices. So, if a continuing partner leaves or resigns from the firm after selling his share to an outsider then only he would suffer loss.
- When one of the partners purchases all other shares from other partners, then he gains from another partner.
- Every time a partner leaves or resigns from the firm, it leads to a change in profit sharing ratio and thus some partners gain and others lose.
- Due to the change in the profit-sharing ratio, some partners gain and some partners lose and so a partner who makes a sacrifice compensates his exiting partner.
- Profit sharing ratio is dependent on mutual agreement of all parties concerned while sacrificing and gaining are not mutually agreed upon but due to external reasons such as the purchase of a share of profit by one partner from another, entry or exit of any partner.
- In case all partners decide to leave the firm voluntarily then it is known as Exit while if a continuing partner leaves or resigns from the firm after selling his share to an outsider then only he would suffer loss and this situation is called Exit.
- When a partner purchases all other shares from other partners then it is known as Purchase and the situation when one of the partners’ purchases all other shares from other partners, then he gains from another partner is known as Gaining.
- If any of the parties decides to leave or resigns from the firm due to some discontentment then it is known as Resignation, while if all partners decide to leave the firm voluntarily or mutually after taking a decision they call it Exit.
- When any partner leaves or resigns from the firm then the gain ratio decreases and the sacrifice ratio increases. On the other hand, when a partner purchases all other shares from other partners then the gain ratio increases, and the sacrifice ratio decreases.
- Purchase of share of profit by one partner leads to entry or exit of any partner while in case the firm is dissolved due to some reasons such as bankruptcy, liquidation, etc., both partners gain or lose.