Multiple choice

The capital of B & D are Rs.$90,000$ and Rs.$30,000$ respectively with the profit sharing ratio $3:1$. The new ratio is $5:3$. The goodwill is valued Rs.$80,000$ as on the date. Amount payable by a gaining partner to a scarifying partner is

  1. B will pay to D Rs.$10,000$
  2. D will pay to B Rs.$10,000$
  3. B will pay to D Rs.$80,000$
  4. D will pay to B Rs.$80,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Old ratio 3:1, new ratio 5:3. B's share changed from 3/4 to 5/8 (gain/sacrifice: 3/4 - 5/8 = 1/8 sacrifice). D's share changed from 1/4 to 3/8 (gain/sacrifice: 1/4 - 3/8 = -1/8 gain). Goodwill is 80,000. D pays B 1/8 of 80,000 = 10,000.

AI explanation

The gaining ratio calculates each partner's change in share by subtracting their old ratio from their new ratio. D's gain is 3/8 minus 1/4, which equals 1/8, while B's sacrifice is 3/8 minus 3/4, resulting in a negative 3/8. Because D gains 1/8 and B sacrifices 3/8, D owes B for the 1/8 share of the Rs.80,000 total goodwill, giving an amount of Rs.10,000. D will pay to B Rs.10,000.

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