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If the new ratio is 5:3 and the gaining ratio is 1:2, which statement is correct?

Answer and explanation

Correct answer: Total future profit is shared in 5:3, and the additional share is acquired in 1:2

The governing concept is the distinction between the new profit-sharing ratio and the gaining ratio after retirement. The new ratio describes the complete shares of the continuing partners in all future profits; therefore, future profit is divided in the ratio 5:3. The gaining ratio describes only the additional portions obtained by the continuing partners from the retiring partner. Thus, 1:2 cannot be used to distribute the entire future profit. It is used only to determine how the retired partner’s former share is acquired. Option A correctly states both functions, while B confuses the two ratios, C makes a false generalisation, and D incorrectly gives future profit to the retiring partner.

Related tags

New RatioGaining RatioRetirement Of PartnerNew RatiosReconstitution Retirement Or Death Of A PartnerAccountancyClass 12 Mcq

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