Read the following information to answer.
Arun and Ram are partners in a restaurant business sharing profits and losses in capital ratio. Their fixed capital from the beginning of the firm was ₹2,00,000 and ₹1,50,000 respectively.
The profit for the year ended 31 March 2022 before the appropriation of Salary and Interest on Capital was ₹2,20,000. Ram is allowed a salary of ₹2,000 per quarter, and both partners are allowed interest on capital @ 10% p.a.
Due to the further expansion of the business, they decided to admit Sanjeev as a new partner for 1/5 share in profits. It was agreed that Sanjeev will bring ₹1,00,000 as capital and ₹50,000 as his share of Goodwill. It was decided that he will give ₹1,00,000 as loan to the firm for 3 years.
The new profit sharing ratio of Arun, Ram and Sanjeev will be:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 16:12:7
Arun and Ram share profits in their capital ratio, ₹2,00,000 : ₹1,50,000 = 4:3. Sanjeev takes 1/5; nothing says how the old partners give it up, so the remaining 4/5 is shared by them in their old ratio.
Sanjeev’s share = 1/5 = 7/35
Remaining share = 1 − 1/5 = 4/5
Arun = 4/5 × 4/7 = 16/35
Ram = 4/5 × 3/7 = 12/35
New ratio of Arun, Ram and Sanjeev = 16:12:7