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A, B and C share profits in the ratio 3:5:2. When A retires, if B and C do not make a new profit-sharing agreement, in what ratio will they share profits?

Answer and explanation

Correct answer: 5:2

After A retires, B and C continue as partners. In the absence of a new agreement, they continue to share profits in their existing mutual ratio. Their old mutual ratio was 5:2, so their profit-sharing ratio remains 5:2. The ratios 3:5 and 3:2 do not represent the continuing partners’ original mutual ratio, while 1:1 has no basis in the given information. Exam tip: On retirement, use the continuing partners’ old mutual ratio unless a new agreement specifies a different ratio.

Related tags

Partner RetirementNew Profit Sharing RatioContinuing PartnersPartnership AccountsNew RatiosReconstitution Retirement Or Death Of A PartnerAccountancyClass 12 Mcq

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