Multiple choice

Mr.X is admitted into a partnership firm for 1/4th share of profit. The total capital of the old partners stood at Rs. 45,000 after carrying adjustment of goodwill, revaluation of assets and liabilities and transfer of reserves and surplus. If X pays Rs.15,000 as his share of goodwill to the existing partner privately, what would be accounting treatment?

  1. Goodwill A/c to be debited by Rs. 15,000

  2. Goodwill A/c to be debited by Rs. 60,000

  3. No accounting treatment

  4. Credit to goodwill A/c by Rs. 15,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When a new partner pays goodwill privately to existing partners, it is outside the books of the partnership firm. Therefore, no accounting entry is required in the firm's books.

AI explanation

When an incoming partner pays goodwill directly to the existing partners outside the business, it is a private transaction. Because the funds do not enter the firm's bank account, no entry is recorded in the company's ledger. The result is no accounting treatment.

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