Multiple choice

A & B are partners sharing the profit in the ratio of 3:2. They take C as the new partner, who is supposed to bring Rs 25,000 against capital and Rs 10,000 against goodwill. New profit sharing ratio is 1:1:1. C brought cash for his share of Capital and agreed to compensate to A and B outside the firm. How this will be treated in the books of the firm?

  1. Cash brought in by C will only be credited to his capital account

  2. Goodwill will be raised to full value in old ratio

  3. Goodwill will be raised to full value in new ratio

  4. Cash brought in by C will be credited to his account and debited with his share of goodwill, which will be debited to A and B's account in sacrificing ratio
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Since C pays for goodwill privately to A and B, this transaction does not involve the firm's books. Only the capital contribution brought by C is recorded in the firm's books.

AI explanation

Because the new partner C compensates the old partners A and B for goodwill outside the firm, the firm's books are not involved in the goodwill transaction. The cash brought in by C is solely for his capital share. Therefore, the firm will only credit the Rs. 25000 brought by C to his capital account.

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