In the absence of any information regarding the acquisition of share in profits of the retiring/deceased partner by the remaining partners, it is assumed that they will acquire his/her share in following:
In the absence of any information regarding the acquisition of share in profits of the retiring/deceased partner by the remaining partners, it is assumed that they will acquire his/her share in following:
Solution
When a partner retires or dies and there is no specific information about how the remaining partners will acquire the outgoing partner's share, the default assumption is that they acquire it in their Old Profit Sharing Ratio.
This means the remaining partners will divide the retiring/deceased partner's share among themselves in the same proportion in which they were already sharing profits before the retirement or death.
For example:
If three partners A, B, and C are sharing profits in the ratio 3:2:1, and C retires without any agreement about how A and B will acquire C's share, then A and B will acquire C's share in their old ratio of 3:2.
If C's share = 1/6
A will gain = 1/6 × 3/5 = 1/10
B will gain = 1/6 × 2/5 = 1/15
The old profit sharing ratio between the remaining partners (3:2) is used to distribute the outgoing partner's share. This ratio is obtained by taking only A and B's existing shares (3 and 2) and ignoring C's share.
This is the standard presumption in partnership accounting when no other agreement is specified.
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