When a partner withdraws from the partnership for a settlement that is less than his or her capital balance,the difference between the exiting partner's capital and the settlement amount is added to the capital of the remaining partners.

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This is known as the "gaining ratio" and it applies when a partner leaves the partnership with a settlement amount that's less than their capital balance. The remaining partners absorb the difference in their capital accounts, which increases their overall share in the partnership.

When a Partner Withdraws from the Partnership for a Settlement