Multiple choice

A,B & C were equal partners with goodwill $Rs.1,20,000$ in the balance sheet and they agreed to take D as an equal partner on the term that he should bring $Rs.1,60,000$ as his capital and goodwill, his share of goodwill was evaluated at $Rs.60,000$ and the goodwill account is to be written off before admission. What will be the treatment for goodwill?

  1. Write off the goodwill of $Rs.1,20,000$ in old ratio.

  2. Cash brought in by D for goodwill will be distributed among old partners in sacrificing ratio.

  3. Both (A) & (B).

  4. None of the above.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When a new partner is admitted, existing goodwill in the balance sheet is written off in the old profit-sharing ratio. New goodwill brought by the partner is distributed among old partners in the sacrificing ratio. Both actions are standard accounting procedures.

AI explanation

When a new partner is admitted, the existing goodwill in the balance sheet must be written off in the old profit sharing ratio among the old partners. The premium for goodwill brought in by the new partner is distributed among the old partners in their sacrificing ratio. Therefore, both writing off the old goodwill and distributing the new partner's cash for goodwill are required treatments.

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