The correct answer is: C. Sacrificing ratio.
When goodwill is brought by the incoming partner in the form of cash, the goodwill amount is credited to the old partners in their sacrificing ratio. The sacrificing ratio is the ratio in which the old partners agree to sacrifice their share of the profits to the incoming partner. This is done in order to compensate the incoming partner for the goodwill that they are bringing into the business.
The old profit sharing ratio is the ratio in which the old partners shared the profits of the business before the incoming partner joined. The new profit sharing ratio is the ratio in which the old and new partners will share the profits of the business after the incoming partner joins.
The old capital ratio is the ratio in which the old partners’ capital accounts are valued. The new capital ratio is the ratio in which the old and new partners’ capital accounts will be valued after the incoming partner joins.
Here is a more detailed explanation of each option:
- A. Old profit sharing ratio. This is the ratio in which the old partners shared the profits of the business before the incoming partner joined. However, this is not the correct answer because the goodwill amount is credited to the old partners in their sacrificing ratio, not their old profit sharing ratio.
- B. New profit sharing ratio. This is the ratio in which the old and new partners will share the profits of the business after the incoming partner joins. However, this is not the correct answer because the goodwill amount is credited to the old partners in their sacrificing ratio, not the new profit sharing ratio.
- C. Sacrificing ratio. This is the ratio in which the old partners agree to sacrifice their share of the profits to the incoming partner. This is done in order to compensate the incoming partner for the goodwill that they are bringing into the business. Therefore, this is the correct answer.
- D. Old capital ratio. This is the ratio in which the old partners’ capital accounts are valued. However, this is not the correct answer because the goodwill amount is credited to the old partners in their sacrificing ratio, not their old capital ratio.
- E. New capital ratio. This is the ratio in which the old and new partners’ capital accounts will be valued after the incoming partner joins. However, this is not the correct answer because the goodwill amount is credited to the old partners in their sacrificing ratio, not the new capital ratio.