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A, B and C share profits and losses in the ratio 3:2:5. C retires, and A and B acquire C’s share in the ratio 1:4. What will be the new profit-sharing ratio of A and B?

Answer and explanation

Correct answer: 2:3

C’s original share was 5/10. When C retires, A acquires 1/5 of C’s share, which is 1/10, while B acquires 4/5 of C’s share, which is 4/10. Thus, A’s new share is 3/10 + 1/10 = 4/10, and B’s new share is 2/10 + 4/10 = 6/10. Simplifying 4:6 gives the new ratio 2:3. Exam tip: 1:4 is the gaining ratio, not the new profit-sharing ratio.

Related tags

New RatioRetirement Of PartnerGaining RatioProfit Sharing RatioPartnership AccountingNew RatiosReconstitution Retirement Or Death Of A PartnerAccountancy

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