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

Answer and explanation

Correct answer: 7:3

Take the total profit as 10 parts. The old shares of A, B and C are 3/10, 2/10 and 5/10, respectively. A and B acquire C’s 5/10 share in the ratio 4:1, so A receives 4/10 and B receives 1/10. Therefore, A’s new share is 3/10 + 4/10 = 7/10, while B’s new share is 2/10 + 1/10 = 3/10. Hence, the new ratio is 7:3. Exam tip: Divide the retiring partner’s share according to the acquisition ratio and add those portions to the partners’ old shares.

Related tags

Retirement Of PartnerNew RatioProfit Sharing RatioPartnership AccountsAcquisition RatioNew RatiosReconstitution Retirement Or Death Of A PartnerAccountancy

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