Solution

When a partner retires or dies, the outgoing partner's share in profits needs to be distributed among the remaining partners.

Default Assumption: In the absence of any specific agreement or information, it is assumed that the remaining partners will acquire the retiring/deceased partner's share in their old profit sharing ratio.

Illustration

Suppose A, B, and C are partners sharing profits in the ratio 3:2:1.

If C retires and no information is given about how A and B will acquire C's share:

• A and B will acquire C's share in their old ratio of 3:2

This means:

• A and B were sharing in 3:2 among themselves
• They will continue to acquire C's share in the same proportion (3:2)

Why Old Ratio?

The old profit sharing ratio represents the existing relationship and understanding between the continuing partners. Unless they decide otherwise, this relationship is maintained when acquiring the retiring partner's share.

Note: The sacrificing ratio is used for a different purpose - to calculate how much goodwill compensation one partner should pay to another. It is not used to determine how the retiring partner's share is acquired.

Correct Answer: Option 1 - Old profit sharing ratio