The correct answer is: B. on the retirement of a partner
Sacrifice ratio is a term used in partnership accounting to describe the ratio in which the remaining partners share the retiring partner’s capital account balance. The sacrifice ratio is calculated by taking the difference between the retiring partner’s capital account balance and the amount that the retiring partner is paid, and then dividing that difference by the total capital account balance of the remaining partners.
The sacrifice ratio is used to determine how much each of the remaining partners will contribute to the retiring partner’s capital account balance. The partner with the highest sacrifice ratio will contribute the most, and the partner with the lowest sacrifice ratio will contribute the least.
Sacrifice ratio is used on the retirement of a partner because it is a fair way to distribute the retiring partner’s capital account balance among the remaining partners. The sacrifice ratio takes into account the amount that each partner has invested in the partnership, as well as the amount of profit that each partner has earned.
Here are the brief explanations of each option:
- A. on the death of a partner
On the death of a partner, the deceased partner’s capital account balance is usually paid to the deceased partner’s estate. The remaining partners do not have to contribute anything to the deceased partner’s capital account balance.
- C. on the dissolution of a firm
On the dissolution of a firm, the assets of the firm are sold and the proceeds are distributed to the partners according to their capital account balances. The remaining partners do not have to contribute anything to the capital account balances of the partners who are withdrawing from the firm.
- D. on the change in the profit sharing ratio
When the profit sharing ratio of a partnership changes, the partners must contribute to the capital account balances of the partners whose profit sharing ratios have decreased. The amount that each partner contributes is determined by the sacrifice ratio.