The correct answer is: A. Capital Ratio
In piecemeal distribution of cash on dissolution of a firm, cash is distributed to partners in the capital ratio. This means that each partner receives a share of the cash that is proportional to their capital contribution to the firm.
The capital ratio is calculated by dividing each partner’s capital contribution by the total capital contribution of all the partners. For example, if a firm has two partners, A and B, and A has contributed $100,000 and B has contributed $200,000, then the capital ratio would be 1:2. This means that A would receive 1/3 of the cash that is distributed and B would receive 2/3 of the cash that is distributed.
The capital ratio is used to distribute cash on dissolution because it is fair and equitable. It ensures that each partner receives a share of the cash that is proportional to their investment in the firm.
The other options are incorrect because they do not reflect the way that cash is distributed on dissolution of a firm.
- Option B, profit sharing ratio, is the ratio in which partners share profits. This ratio is not used to distribute cash on dissolution.
- Option C, sacrificing ratio, is the ratio in which partners share the losses of a firm. This ratio is also not used to distribute cash on dissolution.
- Option D, none of these, is incorrect because it does not reflect the way that cash is distributed on dissolution of a firm.