Practicing Success
In which ratio are the sacrificing partners' capital accounts debited in the journal entry for the new value of goodwill? |
New profit sharing ratio Old profit sharing ratio Sacrificing ratio Cannot be determined |
Sacrificing ratio |
The sacrificing partners' capital accounts are debited in their sacrificing ratio to give effect to the new value of goodwill. The sacrificing ratio is the ratio in which the existing partners agree to sacrifice their share of profits in order to accommodate the incoming partner. It represents the ratio in which the existing partners' capital is adjusted to create the new value of goodwill. By debiting the sacrificing partners' capital accounts in their sacrificing ratio, the partners are effectively reducing their individual capital balances to accommodate the new partner's capital contribution and establish the new value of goodwill. |