Question

R, S and M are partners sharing profits in the ratio of 2/5, 2/5 and 1/5. M decides to retire from the business and his share is taken by R and S in the ratio of 1 : 2. Calculate the new profit-sharing ratio.

Answer 1

The new profit-sharing ratio is calculated below:

Explanation:

Old Ratio R, S and M=2: 2: 1

M's Profit share $=\frac{1}{5}$

After M retired from the firm, his share that was taken by R and S = 1: 2

M's Share taken by R

$=\frac{1}{5} \times \frac{1}{3}=\frac{1}{15}$

M's Share taken by S

$=\frac{1}{5} \times \frac{2}{3}=\frac{2}{15}$

New Ratio = Old Ratio + M's Share taken by

$R's =\frac{2}{5}+\frac{1}{15}=\frac{6}{15}+\frac{1}{15}=\frac{7}{15}$

$S's =\frac{2}{5}+\frac{2}{15}=\frac{6}{15}+\frac{2}{15}=\frac{8}{15}$

New Profit (R and S) =7: 8

Thus, the new profit-sharing ratio of R and S will be 7 : 8.