Existing goodwill refers to the reputation and value that a business has built over time. It represents the positive perception and recognition that customers and stakeholders have towards the business. Goodwill is considered as an intangible asset on the balance sheet and is typically associated with the excess of the purchase price over the fair value of the net assets acquired in a business combination.

Change in profit sharing ratio refers to the alteration in the distribution of profits among the partners of a partnership firm. This change can occur due to various reasons such as a new partner joining the firm, retirement of a partner, or any other agreement between the partners.

Treatment of Existing Goodwill
When there is a change in the profit sharing ratio, the existing goodwill of the partnership is affected. The treatment of existing goodwill depends on the agreement between the partners and the accounting policies followed by the firm. There are two possible scenarios:

1. No Adjustment for Existing Goodwill:
If the partners decide not to make any adjustment for the existing goodwill, it means that the goodwill will continue to be recorded at its original value on the balance sheet. In this case, the change in profit sharing ratio will not affect the existing goodwill. The partners will simply adjust their capital accounts to reflect the new profit sharing ratio.

2. Adjustment for Existing Goodwill:
If the partners decide to adjust the existing goodwill, it means that the goodwill will be revalued based on its fair value at the time of the change in profit sharing ratio. In this case, the existing goodwill will be written off from the balance sheet and a new goodwill will be recorded based on the fair value. The partners will then adjust their capital accounts to reflect the new profit sharing ratio and the revalued goodwill.

Explanation of the Answer
The correct answer to the question is option 'C', which states that the statement is false. This means that existing goodwill is supposed to be treated in case of a change in profit sharing ratio. The treatment of existing goodwill depends on the agreement between the partners and the accounting policies followed by the firm, as explained above.

It is important to note that the treatment of existing goodwill may vary depending on the specific circumstances of the partnership and the accounting standards followed. Therefore, it is essential for the partners to consult with their accountant or financial advisor to determine the appropriate treatment of existing goodwill in their particular situation.