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A, B and C share profits and losses in the ratio 1:6:3. 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: 1:3

Before B’s retirement, the old mutual ratio of A and C was 1:3. Since A and C acquire B’s share in the same 1:3 ratio, their new relative profit-sharing ratio remains 1:3. Verification: A’s new share is 1/10 + (1/3 × 6/10) = 1/4, while C’s new share is 3/10 + (3/4 × 6/10) = 3/4; hence the ratio is 1:3. Exam tip: If the continuing partners acquire the retiring partner’s share in their old mutual ratio, their mutual ratio remains unchanged.

Related tags

Old Mutual RatioRetirement Of PartnerNew Profit Sharing RatioGaining RatioPartnership AccountsNew RatiosReconstitution Retirement Or Death Of A PartnerAccountancy

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