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Difficulty: EasyRetirement and Death of a Partner

Tayo, Segun, and Femi are partners in a firm sharing profits and losses in the ratio 5:3:25:3:2 respectively. Femi decides to retire from the partnership. On the date of his retirement, a revaluation of the partnership assets resulted in a net profit of ₦25,000\text{₦}25,000. What is Femi's share of the revaluation profit?

  1. ₦5,000\text{₦}5,000Answer
  2. B
    ₦7,500\text{₦}7,500
  3. C
    ₦12,500\text{₦}12,500
  4. D
    ₦25,000\text{₦}25,000

Answer

Femi's share of the revaluation profit is ₦5,000\text{₦}5,000.
When a partner retires, any profit arising from the revaluation of assets and liabilities must be shared among all existing partners in their old profit-sharing ratio (5:3:25:3:2). The total parts equal 1010 (5+3+25 + 3 + 2). Femi's share is 22 parts out of 1010. Calculating 210×₦25,000\frac{2}{10} \times \text{₦}25,000 gives ₦5,000\text{₦}5,000.

Step-by-Step Solution

1
Determine the total profit-sharing ratio parts
Total ratio parts = 5+3+2=105 + 3 + 2 = 10
The sum of all partners' ratio components gives the total denominator for apportionment.
2
Identify the retiring partner's ratio fraction
Femi's fraction = 210\frac{2}{10}
Femi's share corresponds to the last part of the 5:3:25:3:2 ratio.
3
Calculate Femi's share of the revaluation profit
Femi's share = 210×₦25,000=₦5,000\frac{2}{10} \times \text{₦}25,000 = \text{₦}5,000
Multiplying the total revaluation profit by Femi's profit-sharing fraction yields his credited share.

Key Concept

Distribution of Asset Revaluation Profit upon Partner Retirement
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Topics

Retirement and Death of a Partner

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