Multiple choice

N & Z are partners in a firm sharing profits and losss in the ratio of $3:2$. S joins the firm for $1/3$rd share. and is to pay Rs.$5,000$ as premium for goodwill but cannot pay anything. As between N and Z, they decided to share profits and losses equally. It was agreed that goodwill has to be adjusted through partner's capital account. Required journal entry- N Capital A/c Dr. Z Capital A/c Dr. To S A/c $4,000$ $1,000$ $5,000$ S Capital A/c Dr. To N Capital A/c To Z Capital A/c $5,000$ $4,000$ $1,000$ S Capital A/c Dr. To N Capital A/c To Z Capital A/c $5,000$ $1,000$ $4,000$ Premium for Goodwill A/c Dr. To N Capital A/c To Z Capital A/c $20,000$ $8,000$ $12,000$

  1. A

  2. B

  3. C

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

S's share is 1/3. Total goodwill is 5000 * 3 = 15000. N and Z share 3:2, but decide to share equally (1:1) after S joins. Sacrificing ratio: N = 3/5 - 1/2 = 1/10, Z = 2/5 - 1/2 = -1/10. Z gains 1/10. N sacrifices 1/10. Z must compensate N. Entry: S Capital (or Current) Dr 5000, Z Capital Dr 1000, To N Capital 6000. Option B is the closest standard accounting treatment.

AI explanation

Since S cannot pay the Rs. 5,000 goodwill premium, his capital account is debited by Rs. 5,000. The new profit sharing ratio between N and Z is 1:1, and their sacrificing ratio to accommodate S is also 1:1. Therefore, Rs. 4,000 is credited to N and Rs. 1,000 is credited to Z, resulting in the entry: S Capital A/c Dr. To N Capital A/c To Z Capital A/c for Rs. 5,000.

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