Partnership

Admission

Medium

A and N are partners, sharing profits in the ratio 2:1. A's son Ashu was admitted as a partner for 1/4th share, half of which was gifted by A to her son. The remaining was contributed by N. The goodwill of the Firm is valued at 40,000. How much amount will be credited to the old partner's capital account for goodwill?

Rs. 2,500 each

Rs. 5,000 each

Rs. 20,000 each

Rs. 10,000 each

✅ Correct Option: 2

Given Information:

A and N share profits in ratio 2:1
Ashu (A's son) admitted for 1/4th share
Half of Ashu's share (1/8) is gifted by A
Remaining half (1/8) is contributed by N
Goodwill of firm = Rs. 40,000

Understanding the Sacrifice:

Ashu's share = $\frac{1}{4}$

Share gifted by A = $\frac{1}{2} \times \frac{1}{4} = \frac{1}{8}$

Share contributed by N = $\frac{1}{2} \times \frac{1}{4} = \frac{1}{8}$

Sacrificing Ratio:

A sacrifices = $\frac{1}{8}$
N sacrifices = $\frac{1}{8}$

Goodwill Compensation:

When partners sacrifice their share for a new partner, they receive compensation through goodwill based on their sacrificing ratio.

Formula: Goodwill credited = Total Goodwill × Share sacrificed

For A: $40,000 \times \frac{1}{8} = 5,000$

For N: $40,000 \times \frac{1}{8} = 5,000$

Both A and N will be credited Rs. 5,000 each to their capital accounts for goodwill.

Note: Even though A gifted her share to her son, she still receives goodwill compensation because she sacrificed part of her profit-sharing ratio in the firm. The gift is a personal arrangement, but the firm must compensate for the economic sacrifice of profit share.

Correct Answer: Option 2 - Rs. 5,000 each

2025: 13 May Shift 2

Arrange in correct sequence at a time of admission of partner-

(A) Adjustments of capital accounts.

(B) Valuation of goodwill

Choose the correct answer from the options given below:

2025: 22 May Shift 2

As per AS-26 Intangible assets like goodwill should be written off.

2025: 14 May Shift 1

C will withdraw the capital amount after capital are adjusted in the ratio of their respective shares in profits. The amount is:

2022: 16 July Shift 2

Sometimes the value of Goodwill is not given at the time of admission/retirement of a partner. In such a situation, it has to be inferred from capital and profit sharing ratio. such Goodwill is called

2026: 11 May Shift 2

Arrange the following steps being used in calculating goodwill of the firm by Capitalisation of Super Profits.

A. Calculate normal profits on capital employed and average profit for past years.

B. Multiply the super profits by the required rate of return multiplier, i.e. Goodwill = Super Profits × 100/Normal Rate of Return

C. Calculate super profits by deducting normal profits from average profits.

D. Calculate capital of the firm, which is equal to total assets (excluding goodwill and fictitious assets) minus outside liabilities

Choose the correct answer from the options given below:

2026: 12 May Shift 1

Which of the following is not a mode of reconstitution of a partnership firm?

Solution

Related questions:

Keyboard Shortcuts

CUET Accountancy Past Year Questions (Topic-Wise)