For the right to get a share in future profits of a partnership firm, a newly admitted partner will have to bring :-
For the right to get a share in future profits of a partnership firm, a newly admitted partner will have to bring :-
Solution
When a new partner joins a partnership firm, they gain the right to share in the firm's future profits. This right has value because the existing partners have already built the firm's reputation, customer base, and earning capacity through their past efforts.
To compensate the old partners for sharing this future profit-earning capacity, the new partner must bring premium for goodwill.
Understanding the concept:
Goodwill represents the firm's established reputation and future profit potential. When a new partner is admitted, they immediately start earning profits without having contributed to building this goodwill in the past. Therefore, they must compensate the existing partners by paying premium for goodwill.
This premium is the new partner's contribution for:
- Getting a share in profits built on past efforts of old partners
- Benefiting from the firm's existing reputation and customer relationships
- Gaining immediate profit-sharing rights
The premium for goodwill is distributed among the old partners in their sacrificing ratio as they are the ones giving up a portion of their future profit shares.
Note: The new partner also brings capital (assets) separately, but that is for their capital account. The premium for goodwill is specifically for acquiring the right to share in future profits.
Correct Answer: Option 4
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