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

Answer and explanation

Correct answer: 4:3:3

The total of the original ratio is 10, so B’s share is 5/10. This share is distributed among A, C and D in the ratio 2:2:1, giving them additional shares of 2/10, 2/10 and 1/10, respectively. Therefore, A’s new share is 2/10 + 2/10 = 4/10, C’s is 1/10 + 2/10 = 3/10, and D’s is 2/10 + 1/10 = 3/10. Hence, the new ratio is 4:3:3. Exam tip: Divide the retiring partner’s share according to the gaining ratio and add each gain to the partner’s original share.

Related tags

Partnership AccountingNew RatioPartner RetirementGaining RatioProfit SharingNew RatiosReconstitution Retirement Or Death Of A PartnerAccountancy

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