A and B were partners in a firm sharing profits and losses in the ratio of 3:2. They admit C into the partnership with 1/6 share in the profits. Calculate the new profit sharing ratio?
New Profit Sharing Ratio is 3:2:1.
Explanation
Based on the method illustrated in the provided context (Illustration 25), when a new partner is admitted for a specific share, the remaining share is distributed among the old partners in their old profit sharing ratio. Here, C is admitted for 1/6 share. The remaining share is 5/6, which is distributed between A and B in their old ratio of 3:2. This calculation results in A getting 3/6 (or 1/2), B getting 2/6 (or 1/3), and C getting 1/6, resulting in a new ratio of 3:2:1.
Solution Steps
Step 1: Calculate the remaining share C is admitted for 1/6 share. The remaining share of the firm is calculated as: Remaining Share = 1 - C's Share Remaining Share = 1 - 1/6 = 5/6
Step 2: Calculate new shares of old partners The remaining share (5/6) is distributed between A and B in their old ratio of 3:2. A's New Share = (3/5) of (5/6) = 15/30 = 1/2 B's New Share = (2/5) of (5/6) = 10/30 = 1/3
Step 3: Determine the New Profit Sharing Ratio New Ratio = A's New Share : B's New Share : C's Share New Ratio = 1/2 : 1/3 : 1/6 To make denominators common (LCM = 6): A's Share = 3/6 B's Share = 2/6 C's Share = 1/6 New Ratio = 3:2:1