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A, B and C share profits in the old ratio of 5:6:4. C retires, and the new profit-sharing ratio of A and B becomes 2:3. What is the gaining ratio of A and B?

Answer and explanation

Correct answer: 1:3

Under the old ratio, A's share was 5/15 = 1/3 and B's share was 6/15 = 2/5. Under the new ratio of 2:3, A's share is 2/5 and B's share is 3/5. Therefore, A's gain is 2/5 − 1/3 = 1/15, while B's gain is 3/5 − 2/5 = 1/5 = 3/15. Hence, the gaining ratio is 1/15:3/15 = 1:3. Exam tip: do not confuse the new profit-sharing ratio with the gaining ratio.

Related tags

Goodwill-SettlementGaining-RatioPartner-RetirementProfit-Sharing-RatioNumericalGoodwill SettlementReconstitution Retirement Or Death Of A PartnerAccountancy

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