To which profit does the new profit sharing ratio apply?

Correct answer: On profit after admission

The governing concept is that admission of a partner changes the profit-sharing arrangement from the date of admission. Therefore, the new profit-sharing ratio is used for profits earned after the incoming partner is admitted. Profits relating to the period before admission belong to the old partners and are normally divided in their old ratio, unless a specific adjustment is required for an exceptional situation. The ratio is not restricted to cash profit, because accounting profit may include credit transactions and non-cash items. It also has no direct connection with the amount of capital contributed. Hence option A is correct; options B, C and D confuse the effective date or the basis of profit sharing.