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If the old profit-sharing ratio of A, B and C is \(2:2:1\) and C retires, what fraction of the firm's goodwill is due to C?

Answer and explanation

Correct answer: \(\frac{1}{5}\)

The total of the old ratio \(2:2:1\) is \(5\). C’s old share is \(1\), so C is entitled to \(\frac{1}{5}\) of the firm’s goodwill on retirement. \(\frac{2}{5}\) is the share of either A or B, not C’s share. Exam tip: Find the retiring partner’s old fraction before calculating the goodwill adjustment.

Related tags

AccountancyPartnership AccountsRetirement Of PartnerGoodwill SettlementOld Profit Sharing RatioReconstitution Retirement Or Death Of A PartnerClass 12 Mcq

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