Multiple choice

A & B shares profit & losses equally. They admit C as an equal partner and goodwill was valued as Rs.$30,000$ (book value NIL). C is to bring in Rs.$20,000$ as his capital and the necessary cash towards his share of Goodwill. Goodwill Account will not remain in the books. What will be the final effect of goodwill in the partner's capital account?

  1. A & B's account credited with Rs.$5,000$ each.
  2. All partner's account credited with Rs.$10,000$ each
  3. Only C's account credited with Rs.$10,000$ as cash bought in for goodwill

  4. Final effect will be nil in each partner
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When a new partner brings goodwill, it is credited to the existing partners in their sacrificing ratio. Since C is an equal partner (1/3 share), A and B sacrifice equally. Goodwill 30,000 divided by 2 = 15,000 each? No, the total goodwill is 30,000, C's share is 1/3 * 30,000 = 10,000. This 10,000 is shared by A and B equally, so 5,000 each.

AI explanation

Since C is an equal partner, his share is 1/3, and his share of goodwill is 1/3 of Rs. 30,000, which equals Rs. 10,000. This Rs. 10,000 brought in by C is distributed to the sacrificing partners, A and B, equally, meaning Rs. 5,000 each. Because the Goodwill Account will not remain in the books, it is written off, leaving A and B's accounts with a net credit effect of Rs. 5,000 each.

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