Question

At the time of change in profit sharing ratio, existing goodwill is written off among the partners in:

• A. Sacrificing Ratio
• B. Equal Ratio
• C. Old Ratio
• D. Gaining Ratio

Hint:

For reconstitution of a firm, remember: - **Existing goodwill** → written off in **old ratio** - **New goodwill** (due to change) → adjusted via **sacrificing or gaining ratio**

Answer 1

The Correct Option is C

Step 1: Contextualization.
When a profit-sharing ratio changes among current partners (due to new admissions, partner retirements, or overall business restructuring), any goodwill already recorded in the company's accounts (referred to as existing goodwill) requires adjustment.Step 2: Existing Goodwill Handling.
Existing goodwill represents a prior accumulated gain and must be eliminated by distributing it among the original partners according to their former profit-sharing proportions, ensuring equity.Step 3: Applicable Principle.
The governing principle states:\[\text{Existing goodwill is written off in the old profit-sharing ratio.}\]