Question

Goodwill brought in by incoming partner in cash is taken away by the old partners in ___________.

• A. Old Profit Sharing Ratio
• B. New Profit Sharing Ratio
• C. Sacrificing Ratio
• D. Capital Ratio

Answer 1

Answer: (C)

Sacrificing Ratio

In case of admission of a partner, goodwill cannot be raised in the books of the firm because ni consideration in money or money;s worth is paid for it. If incoming partner brings any premium over and above his capital contribution at the time of his admission, such premium should be distributed to other existing partners. When a new partner is admitted to a firm, the old partner generally sacrifice in favour of the new partner in terms of lower profit sharing ratio in the future. Therefore, the premium for goodwill brought in by the new partner shall be given to the existing partners on the basis of profit sacrificing ratio.