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The old profit-sharing ratio of A, B and C is 7:5:3. A retires, and B and C agree to share future profits in the new ratio of 2:1. What is the gaining ratio of B and C?

Answer and explanation

Correct answer: 5:2

Under the old ratio, B’s share was \(\frac{5}{15}\) and C’s share was \(\frac{3}{15}\). Under the new ratio of 2:1, B’s share is \(\frac{2}{3}=\frac{10}{15}\) and C’s share is \(\frac{1}{3}=\frac{5}{15}\). Therefore, B gains \(\frac{10}{15}-\frac{5}{15}=\frac{5}{15}\), while C gains \(\frac{5}{15}-\frac{3}{15}=\frac{2}{15}\). Hence, the gaining ratio is 5:2. Exam tip: calculate each continuing partner’s gain as new share minus old share before forming the ratio.

Related tags

AccountancyPartnershipGoodwillGaining RatioRetirement Of PartnerGoodwill SettlementReconstitution Retirement Or Death Of A PartnerClass 12 Mcq

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