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What should be the amount of compensation if the partners of the firm decide to change their profit share ratio:
  • a)
    Amount of compensation = Value’s of firm goodwill x share of loss sacrificed
  • b)
    Amount of compensation = Value’s of firm goodwill x share of profit sacrificed
  • c)
    Amount of compensation = Profit of the year x share of profit gained
  • d)
    Amount of compensation = Value’s of firm goodwill x share of profit gained
Correct answer is option 'B'. Can you explain this answer?
Verified Answer
What should be the amount of compensation if the partners of the firm ...
If the partners of a firm decide to change their Profit Sharing Ratio, the gaining partner must compensate the sacrificing partner. Following approach is suggested to deal with the Goodwill at the time of change in Profit sharing ratio:

Step 1: Write off the existing goodwill appearing in the books by passing the following journal entries:

All Partners' Capital/Current A/c Dr (In old ratio)

To Goodwill A/c

Step 2:   Give credit of goodwill to the sacrificing partner and debit to the gaining partner.

(a) In case of fluctuating capitals

 
Gaining Partner's Capital A/c                       Dr

To Sacrificing Partner Capital A/c

 
(b) In case of fixed capitals

 
Gaining Partner's Current A/c                       Dr

            To Sacrificing Partner Current A/c

 

The amount of compensation of goodwill is calculated as follow:

Amount of compensation payable By Gaining Partner to Sacrificing Partner = Total Goodwill of the firm x Share Gained

Amount of compensation payable By Sacrificing Partner to Gaining Partner = Total Goodwill of the firm x Share Sacrificed

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Most Upvoted Answer
What should be the amount of compensation if the partners of the firm ...
Because those who sacrifice they will take it in there sacrificing ratio.
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Community Answer
What should be the amount of compensation if the partners of the firm ...
The amount of compensation will be equal to the proportionate amount of goodwill. The valuation of goodwill of a firm, its treatment and adjustment is required at the time of change in existing profit sharing ratio among the partners.
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What should be the amount of compensation if the partners of the firm decide to change their profit share ratio:a)Amount of compensation = Value’s of firm goodwill x share of loss sacrificedb)Amount of compensation = Value’s of firm goodwill x share of profit sacrificedc)Amount of compensation = Profit of the year x share of profit gainedd)Amount of compensation = Value’s of firm goodwill x share of profit gainedCorrect answer is option 'B'. Can you explain this answer?
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What should be the amount of compensation if the partners of the firm decide to change their profit share ratio:a)Amount of compensation = Value’s of firm goodwill x share of loss sacrificedb)Amount of compensation = Value’s of firm goodwill x share of profit sacrificedc)Amount of compensation = Profit of the year x share of profit gainedd)Amount of compensation = Value’s of firm goodwill x share of profit gainedCorrect answer is option 'B'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about What should be the amount of compensation if the partners of the firm decide to change their profit share ratio:a)Amount of compensation = Value’s of firm goodwill x share of loss sacrificedb)Amount of compensation = Value’s of firm goodwill x share of profit sacrificedc)Amount of compensation = Profit of the year x share of profit gainedd)Amount of compensation = Value’s of firm goodwill x share of profit gainedCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What should be the amount of compensation if the partners of the firm decide to change their profit share ratio:a)Amount of compensation = Value’s of firm goodwill x share of loss sacrificedb)Amount of compensation = Value’s of firm goodwill x share of profit sacrificedc)Amount of compensation = Profit of the year x share of profit gainedd)Amount of compensation = Value’s of firm goodwill x share of profit gainedCorrect answer is option 'B'. Can you explain this answer?.
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