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Gaining Ratio:
Meaning: It is that ratio in which one or more partners gain share of profit as a
result of sacrifice made by other partners of the firm.
In simple terms, it the ratio of gained share in profits of two or more partners in
terms of the ratio.
Computation: Gaining Share = New Share – Old Share
Accounting Treatment of Goodwill
AS-26 on Intangible Assets: Following are the points specified for Goodwill by AS-
26 on Intangible Assets:
i It should be recorded in the books only when consideration in money or money’s
worth has been paid.
ii. It should not be recorded in the books in the event of admission, retirement,
death or change in the profit sharing ratio among the partners as no
consideration is paid for such goodwill.
iii. In case, where no consideration is paid for goodwill, it has to be adjusted
through the Partners’ Capital Account.
iv. In case the goodwill is raised in the books, it should be written off
immediately.
V. In case of change in profit sharing ratios, compensation payable by the gaining
partner for his gain to the sacrificing partner or partners is known as Goodwill or
Premium for Goodwill.
Premium on Goodwill:
