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A, B and C share profits in the ratio 3:1:2. B retires, and A and C acquire B’s share in their old mutual ratio. What will be the new profit-sharing ratio of A and C?

Answer and explanation

Correct answer: 3:2

A and C have an old mutual ratio of 3:2. Since they acquire B’s share in this same 3:2 ratio, both partners’ shares increase proportionately, so their new mutual ratio remains 3:2. Verification: A’s new share is \(\frac{3}{6}+\frac{3}{5}\times\frac{1}{6}=\frac{3}{5}\), while C’s new share is \(\frac{2}{6}+\frac{2}{5}\times\frac{1}{6}=\frac{2}{5}\). Therefore, the new ratio is 3:2. Exam tip: If the continuing partners gain the retiring partner’s share in their old mutual ratio, their mutual ratio does not change.

Related tags

Retirement Of PartnerNew Profit Sharing RatioOld Mutual RatioPartnership AccountsNew RatiosReconstitution Retirement Or Death Of A PartnerAccountancyClass 12 Mcq

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