Question

Sacrificing ratio is used to distribute ______ in case of admission of a partner.

Options

• Reserves

• Goodwill

• Revaluation Profit

• Balance in Profit and Loss Account

Answer 1

Sacrificing ratio is used to distribute goodwill in case of admission of a partner.

Explanation:

The existing partners use this ratio to determine how to share the compensation (premium for goodwill) brought in by the new partner, because they are “sacrificing” a portion of their future profits to make room for the newcomer. Other items like reserves or revaluation profits are distributed using the old profit-sharing ratio.