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

Answer and explanation

Correct answer: 5:7

The total ratio is 4+5+3=12, so C’s share is 3/12. A acquires one-third of C’s share, namely 1/12, while B acquires two-thirds, namely 2/12. Therefore, A’s new share is 4/12+1/12=5/12 and B’s new share is 5/12+2/12=7/12. Hence, the new ratio is 5:7. Option 4:5 is the old ratio, and 6:8 is not equivalent to 5:7. Exam tip: Divide the retiring partner’s share according to the acquisition ratio and add the respective portions to the old shares.

Related tags

AccountancyPartnership AccountsRetirement Of PartnerNew RatioAcquisition RatioNew RatiosReconstitution Retirement Or Death Of A PartnerClass 12 Mcq

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