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Question
If the incoming partner is to bring Premium for Goodwill in cash and also a balance exists in Goodwill Account, then this Goodwill Account is written off among old partners in ______.
Options
New Profit Sharing Ratio
Old Profit Sharing Ratio
Sacrificing Ratio
None of the above
The gaining ratio
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Solution
If the incoming partner is to bring Premium for Goodwill in cash and also a balance exists in Goodwill Account, then this Goodwill Account is written off among the old partners in Old Profit Sharing Ratio.
Explanation:
In the previous profit-sharing ratio, the goodwill indicated on the balance sheet is shared among the partners. The sacrificing ratio is utilized to share the goodwill that the new partner will bring in.
If the partners elect to make it proportionate to their profit-sharing ratio, a new profit-sharing ratio is employed to reconstruct the firm’s capital.
