Goodwill Adjustment in Change of Profit Sharing Ratio

Steps:

• Identify sacrificing and gaining partners based on old vs. new ratios.
• Value goodwill to compensate for the change in shares.
• Debit capital accounts proportionally in the new ratio to charge gaining partners.
• Credit capital accounts proportionally in the old ratio to reward sacrificing partners.

Why B is correct:

• It transfers goodwill value from gaining partners (debited in new ratio, reflecting increased entitlement) to sacrificing partners (credited in old ratio, reflecting lost share), per partnership accounting standards.

Why the others are wrong:

• A: Reverses debits and credits, compensating gainers instead of charging them.
• C: Uses current accounts, but adjustments affect capital accounts directly.
• D: Reverses ratios and uses current accounts, inverting compensation and wrong account type.

Final answer: B