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The old profit-sharing ratio of A, B and C is 5:4:1. After C’s retirement, the new profit-sharing ratio of A and B is 2:1. Who actually gains from this change?

Answer and explanation

Correct answer: Only A

Under the old ratio, A’s share was \(5/10=1/2\), while under the new ratio it becomes \(2/3\). Thus, A gains \(2/3-1/2=1/6\). B’s share falls from \(4/10=2/5\) to \(1/3\), so B sacrifices a part of the share. Therefore, only A actually gains. Exam tip: Calculate gain or sacrifice as new share minus old share.

Related tags

Partnership AccountsRetirement Of PartnerGoodwill SettlementGain And Sacrifice RatioProfit Sharing RatioReconstitution Retirement Or Death Of A PartnerAccountancyClass 12 Mcq

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