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A, B, C and D share profits in the ratio 9:4:2:1. When A retires, B, C and D acquire A’s profit share equally. What will be their new profit-sharing ratio?

Answer and explanation

Correct answer: 7:5:4

A’s profit share is 9/16. Since B, C and D acquire it equally, each receives 3/16. Therefore, B’s new share is 4/16 + 3/16 = 7/16, C’s is 2/16 + 3/16 = 5/16, and D’s is 1/16 + 3/16 = 4/16. Hence, the new ratio is 7:5:4. Exam tip: Divide the retiring partner’s share equally among the gaining partners and add each gain to their old share.

Related tags

Retirement Of PartnerNew Profit Sharing RatioGaining SharePartnership AccountsNew RatiosReconstitution Retirement Or Death Of A PartnerAccountancyClass 12 Mcq

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