Question

$Z$ is admitted to a firm for $1/4^{th}$ share in the profit for which he brings in Rs.$10,000$ towards premium for goodwill. It will be taken by the old partners in ____________ .

• A. the old profit-sharing ratio
• B. the new profit-sharing ratio
• C. the sacrificing ratio
• D. None of the above

Answer 1

The correct option is C the sacrificing ratio

Premium for goodwill is the additional amount brought in by the incoming partner to compensate for the loss in share of the super profits of the old partners. It is distributed among the old partners in the ratio in which they forego their shares in favour of the new partner which is called the sacrificing ratio.