M, N and S are partners in a firm sharing profit in the ratio of 2 : 1 : 1, N retires and M and S are decided that capital of the new firm will be fixed at ₹1,20,000. Calculate the new capital of M and S.

M's capital ₹80,000 S's capital ₹40,000

The correct answer is Option (3) - M's capital ₹80,000 S's capital ₹40,000.

Old ratio = 2:1:1 (M, N and S)
N retires
As no other information is given so old ratio becomes the new ratio of remaining partners. So, new ratio of M & S = 2:1

Capital fixed for the firm = ₹120000

Capital of M = 120000 x 2/3
                  = ₹80000

Capital of S = 120000 x 1/3
                 = ₹40000