Multiple choice

A,B & C are in partnership sharing profits and losses in the ratio $2:2:1$. They want to admit D into partnership with $1/5$ share. D brings in Rs.$30,000$ as capital and Rs.$10,000$ as premium for goodwill. If premium money is retained in business which of the following journal entry is correct for sharing premium for goodwill? A Capital A/c Dr. B Capital A/c Dr. C Capital A/c Dr. To Premium for Goodwill A/c $4,000$ $4,000$ $2,000$ $10,000$ Premium for Goodwill A/c Dr. To A Capital A/c To B Capital A/c To C Capital A/c $10,000$ $2,000$ $4,000$ $4,000$ Premium for Goodwill A/c Dr. To A Capital A/c To B Capital A/c To C Capital A/c $10,000$ $4,000$ $4,000$ $2,000$ Premium for Goodwill A/c Dr. To A Capital A/c To B Capital A/c To C Capital A/c $10,000$ $3,000$ $3,000$ $4,000$

  1. A

  2. B

  3. C

  4. D
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The premium for goodwill brought by the new partner is distributed among the old partners in their sacrificing ratio. Since the new partner D takes 1/5 share from A, B, and C in their existing profit-sharing ratio of 2:2:1, the sacrificing ratio is 2:2:1. Thus, the Rs. 10,000 premium is divided as 4,000, 4,000, and 2,000 respectively.

AI explanation

D acquires a 1/5 share, leaving a remaining profit share of 4/5 for the old partners. Since their old profit sharing ratio was 2:2:1, their sacrificing ratio remains the same as their old ratio, which is 2:2:1. The Rs. 10,000 premium for goodwill is distributed in this sacrificing ratio, so the Premium for Goodwill account is debited to A, B, and C's capital accounts for Rs. 4,000, Rs. 4,000, and Rs. 2,000 respectively.

Keep practicing — related questions