Multiple choice

A, B and C were partners sharing profits and losses in the ratio of 3 :2 :1. A retired and Goodwill of the firm is to be valued at Rs. 48,000 and Goodwill Account is to be raised which is not appearing in the balance sheet. What will be the treatment for Goodwill?

  1. Credited to Revaluation Account at Rs 48,000

  2. Credited to partners capital account Rs. 48,000 in profit sharing ratio

  3. Only A's capital account credited with Rs. 24,000

  4. Only A's capital account credited with Rs. 48,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When goodwill is raised and not appearing in the balance sheet, it is recorded by debiting the Goodwill Account and crediting all partners' capital accounts in their old profit-sharing ratio.

AI explanation

According to partnership accounting principles, when a decision is made to raise a goodwill account that does not already appear on the balance sheet, the asset is recorded at its current valuation. The goodwill value is allocated to the partners based on their established profit and loss sharing ratio. With a firm goodwill valuation of Rs. 48,000 and an old profit sharing ratio of 3 to 2 to 1, this entire amount is debited to the goodwill account and simultaneously credited to the partners' capital accounts. The correct treatment is credited to partners capital account Rs. 48,000 in profit sharing ratio.

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