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Calculating Gaining Ratio

A and B are p...

Question

A and B are partners sharing profits and losses in the ratio of 2 : 5. They admit C on the condition that he will bring ₹ 14,000 as his share of goodwill to be distributed between A and B. C's share in the future profits or losses will be 1/4th. What will be the new profit-sharing ratio and what amount of goodwill brought in by C will be received by A and B?

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Solution

C is admitted for share

Let the combined share of A, B and C be = 1

Combined share of A and B after C’s admission = 1 − C’s share

New Ratio = Old Ratio × Combined share of A and B

Distribution of C’s share of Goodwill

C’s share of Goodwill = Rs 14,000

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