New Profit Sharing Ratio: New profit sharing ratio is the ratio in which the remaining partner will share future profits after the retirement or death of any partner.
New Share = Old Share + Acquired Share from the Outgoing partner
Gaining Ratio: Gaining ratio is the ratio in which the continuing partners have acquired the share from the retiring deceased partner.
Treatment of Goodwill: The basic rule is that gaining partners shared compensate the sacrificing partner to the extent of their gain for the respective share of goodwill. If goodwill already appears in the books, it will be written off by debiting all partner’s capital account in their old profit sharing ratio.
Revaluation of Assets and Liabilities: At the time of retirement/death of a partner, there may be some assets which may not have been shown at their current values. Similarly, there may be certain liabilities which have been shown at a value different from the obligation to be met by the firm. Besides this, there may be unrecorded assets and liabilities which have to be recorded.
Accumulated Profits or Losses: The reserves (Accumulated profits) or losses belong to all the partners and should be transferred to capital account of all partners.
Retiring partner/deceased partner may be paid in one lump sum or installments with interest.
At the time of retirement/death of a partner, the remaining partner may decide to keep their capital contributions in their profit sharing ratio.