Three partners, A, B and C, have capital balances of ₹4,00,000, ₹2,00,000 and ₹3,00,000 respectively. Partner A retires and the partners decide to buy his share at market value with a 10% premium on the market value. The market values of the partners’ capital are ₹4,50,000 for A, ₹2,20,000 for B and ₹3,30,000 for C. How much will partner B have to pay to buy A’s share?
Answer
₹1,98,000
The correct answer is ₹1,98,000 — Hence partner B pays ₹1,98,000.
Step-by-step solution
- Calculate total capital: ₹4,00,000 + ₹2,00,000 + ₹3,00,000 = ₹9,00,000.
- Compute the amount to buy A’s share at market value with premium: ₹4,50,000 × 1.10 = ₹4,95,000.
- Determine the new capital after A’s retirement: B ₹2,00,000, C ₹3,00,000. Their ratio is 2:3.
- Split the buy‑out amount according to this ratio: B’s share = ₹4,95,000 × (2/5) = ₹1,98,000.
- Hence partner B pays ₹1,98,000.
Common mistake: Not splitting the purchase price after retirement according to the new capital ratio
Concept tested: Buy‑out at market value with premium
Published · How this solution was prepared and checked
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