Question

A, B, C and D were partners in a firm sharing profits in the ratio of 4:3:2:1. on 31.3.2022, C retired from the firm and his share was taken over by B and D equally.

Calculate the new profit-sharing ratio of A, B and D.

Answer 1

The total profit-sharing ratio is:

A : B : C : D = 4 : 3 : 2 : 1

The total of the shares is 4 + 3 + 2 + 1 = 10.

C’s share  in profit = `2/10` or 20%

C’s share taken over by B and D equally

C’s total share `2/10` or 20% is taken over equally by B and D, which means:

B’s share from C = `1/2 xx 20%` = 10%

D’s share from C = `1/2 xx 20%` = 10%

Calculate the new shares for B and D

B's new share = B's original share was 30% `(3/10)`, and he acquired 10% `(1/2)` from C. So, B’s new share = 30% + 10% = 40%.

D's new share: D's original share was 10% `(1/10)`, and he acquired 10% `(1/2)` from C. So, D’s new share = 10% + 10% = 20%.

A’s share remains 40% `(4/10)`, as no change is made to A’s share.

Thus, the new profit-sharing ratio of A, B, and D is:

A : B : D = 40% : 40% : 20%

The new profit-sharing ratio of A, B, and D is 4 : 4 : 2.