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A, B, C and D share profits in the ratio 4:3:2:1. When C retires, A, B and D acquire C’s share in the ratio 2:1:1. What will be the simplified new profit-sharing ratio of A, B and D?

Answer and explanation

Correct answer: 10:7:3

C’s share is 2 out of 10 parts, or 1/5. A, B and D acquire this share in the ratio 2:1:1, so their gains are 1/10, 1/20 and 1/20 respectively. Their new shares are A = 4/10 + 1/10 = 1/2, B = 3/10 + 1/20 = 7/20, and D = 1/10 + 1/20 = 3/20. Multiplying these by 20 gives the simplified ratio 10:7:3. Exam tip: First express the retiring partner’s share as a fraction, then distribute it according to the gaining ratio.

Related tags

Partnership AccountsPartner RetirementNew Profit Sharing RatioGaining RatioRatio SimplificationNew RatiosReconstitution Retirement Or Death Of A PartnerAccountancy

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